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Young and Fashionable: Gen Y Flocks to Online Luxury

They’re young, and they’re spending.

Makeup artist at Lela Rose show
Photo by: Katie Little for CNBC.com
Makeup artist at Lela Rose show

With a taste for luxury developed through flash-sale websites, Gen Y shoppers are increasing their spending at full-price online luxury retailers more than any other age group, according to a new report.

Gen Y spent 31 percent more in 2011 than the year before, followed by Gen X buyers, who shelled out 23 percent more, according to American Express Business Insights data released during Mercedes-Benz Fashion Week. Gen Y is comprised of individuals aged 18 to 29 years old.

The report analyzed spending data culled from 90 million of the company’s cardmembers from 2009 to 2011, said Edmond Jay, senior vice president at American Express Business Insights.

Spending growth on luxury flash-sales sites is now dominated by seniors, who clicked their way to 28-percent spending growth in 2011.

“The recession acted almost as a catalyst for online and online luxury,” Jay said.

During this time, flash sales skyrocketed, but sales growth has since slowed as consumers regained some of their former optimism.

"Now that consumer confidenceis going up, and unemployment is going down a little, I mean, it’s still very uncertain, but I think people are starting to return to that full price," said John Jannuzzi, a style editor at Lucky Magazine. "It is okay to buy something when it’s not on sale or it’s not on a flash sale. With that said, I still love a good flash sale.”

Jay added that men, especially those in Gen Y, are one of the fastest growing segments in luxury and they spend a higher portion of their wallets on luxury than women.

The recession has also altered the way that consumers approach their spending decisions, said Roseanne Morrison, fashion director at the Doneger Group.

“They used to just buy a lot — we called it possession obsession,” Morrison said. “Now we call it surgical shopping — she shops online. She goes into the store and is very careful.”

Calling consumers cautiously optimistic, Maren Hartman, trend analyst at WGSN and director of content operations, echoed this trend. Armed with fashion knowledge gained from reading blogs and following celebrities, consumers are seeking out luxury items in droves.

“Even if someone is a customer, who maybe can’t afford the handbag, the shoe, she waits until she can afford it,” Morrison said.

While planning these splurge purchases, consumers gravitate to timeless pieces that will fill the gaps in their wardrobes.

“It’s no longer ‘I’ll just walk into a store and purchase whatever’ — there’s a purpose,” Hartman said. “Consumers are much more mindful of what they are buying into. Therefore, retailers are catering to that need and capitalizing on it.”

Many designers have also changed their businesses to respond to a more strategic shopper.

One such designer is Lela Rose.

Jenna Bush Hager attends the Lela Rose Fall 2012 fashion show during Mercedes-Benz Fashion Week.
Getty Images
Jenna Bush Hager attends the Lela Rose Fall 2012 fashion show during Mercedes-Benz Fashion Week.

“I wouldn’t say we’ve shifted the collection, but we’ve offered more breadth within the collection of giving more simple silhouettes in just very interesting fabrics — but fabrics that can be a backdrop,” the designer said of her eponymous brand.

Consumers are often pairing these splurge luxury with lower-end items — a tactic that Jenna Bush Hager, former First Daughter and a childhood friend of Rose’s, said she employs. Hager sat front row at the brand’s Fall 2012 show at Lincoln Center on Sunday.

“I think what makes a modern women is you’re constantly wearing different labels — you know, this is a really inexpensive jacket with a nicer dress,” Hager said about her outfit.

Although older generations are still very brand loyal, young consumers tend to buy from a larger assortment of brands, Jay said.

This younger generation also tends to emphasize value more in their spending decisions — a mindset that produces a spending barbell effect. When choosing along a spectrum of price, this group tends to spend either very little or splurge on clothing or dining. This trend often squeezes the middle-market retailer.

Jay said this value mentality leads spenders to think, “If I want to buy a bag, I want to buy a really nice bag, or I want to buy a tote.”

Questions? Comments? Email us at consumernation@cnbc.com. Follow Katie Little on Twitter @katie_little_.

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