Affluent consumers prefer experience
NEW YORK – Optimism, in personal finances and the economy, has reached its highest point in four years, with 51 percent of affluent consumers expressing optimistic viewpoints of the current market, according to a senior executive from the Ipsos Affluent Survey at the Luxury Insights Summit 2015 April 29.
During the “New Insights on Luxury and Luxury Consumers” session, Ipsos shared that the affluent marketplace continues to grow due to consumer optimism, growing 6 percent in 2013 and 8 percent in 2014 to account for 67.5 million wealthy individuals. Of course, not all consumers are equally optimistic after the troubled economic climate of 2008, but three groups are have shown the highest optimism: wealthy millennials, affluent males and the ultra-affluent.
"All the income growth over the past half century has gone to the affluent, the top fifth of the country, and if you look at even more elite groups within the affluent you find growth becoming more and more concentrated," said Steve Kraus, SVP, chief insights officer of the Ipsos Affluent Survey, San Francisco.
"For example, the top 5 percent of the country now has about $322,000 in annual household income," he said. "Back in the late 1960s it was $168,000 household income, that’s $150,000 dollars that drops to the bottom line, after adjusting for inflation, that the top 5 percent has each year for discretionary spending often in luxury categories.
"There’s no question that the affluent are becoming more affluent."
Luxury Insights Summit 2015 was organized by Luxury Daily.
Consumer thoughts
Between 2010 and 2012, the luxury market rebounded after the 2008 recession and returned its focus on its traditional targets. As the affluent sector of the population has continued to grow, wealthy individuals have reengaged with luxury goods and services after a time of “stealth wealth” and “logo shame.”
This reinstated engagement with luxury goes hand-in-hand with expressed confidence of personal financial standings, but the affluents’ spending behaviors were markedly different than how they were in past.
Mr. Kraus noted that in 2013 affluents increased their spendings on active leisure such as sporting equipment, likely acting on a pent up demand founded during the financial troubles of earlier years.
Since 2013, experience has been trending up and greatly influencing the marketplace.
The year 2015 was described by Mr. Kraus as being the “perfect storm of optimism” in terms of how affluents view their personal finances and that of the United States. This optimism has been reflected in consumer spending behavior.
Steve Kraus of Ipsos at Luxury Daily's Luxury Insights Summit 2015
Consumers are spending more on emotionally engaging leisure time activities such as travel, hobbies and fine dining. This is a shift in sentiment to consumers prior to the recession who focused on items rather than moments.
Another lasting effect of the recession is how luxury is viewed and approached by consumers. In 2005, consumers bought luxury goods because they had a desire to own an item whereas now, many consumers purchase luxury merchandise when they feel they received a good deal after a significant amount of research has been conducted on and offline.
The latter point is supported by the fact that 90 percent of wealth in today’s marketplace has been created by individuals in one generation, many who have middle class upbringings and sensibilities that have stayed intact throughout their rise in affluence.
Experiential purchases continue to be on trend with consumers looking for travel experiences that do not place emphasis on the amount of stars given to a hotel, but rather if the time spent aboard was authentic and filled with local sentiment.
Louis Vuitton Spirit of Travel campaign
To this effect, Mr. Kraus explained that luxury goods purchases in general involve a great deal of experience. As an example Mr. Kraus said that experience is in the delivery and used a Chanel suit to make his point -- consumers buy luxury goods because of how it makes them feel, it's less about the logo or brand.
This may be reflective of the onslaught of bespoke options now presented by luxury houses and retailers (see story) and the culturally-inclined packages at high-end hotel properties (see story).
Defining luxury
Mr. Kraus used a series of adjectives to summarize just how much the luxury industry has changed. For example, previously luxury was described as being high-quality and expensive while today expensive is no longer necessary for an item to be characterized as luxury.
Traditional terms are now the “venire of marketing” with rare and unique giving luxury goods a more authentic feeling. Also, design is trending up as is splurge, which connotes fun just as indulgence is trending down because of its link to sinfulness.
The luxury sector is continuing to evolve with the majority of affluent consumers recognizing that the definition of luxury is not what it was five years ago, according to a joint report by Martini Media and Ipsos MediaCT.
As consumers’ tastes have changed from exclusive or status-oriented products to an interest in rare experiences, the Internet has been a driving factor in how these individuals make decisions regarding purchases and bookings. Marketers have invested heavily in digital marketing to account for this trend and to provide consumers with content geared toward ensuring informative purchases (see story).
How luxury is described is greatly linked to the generation of consumers in question. Millennials, and how best to market to the consumer group, are much discussed and will be the demographic that defines luxury going forward.
"Luxury today is much more individually defined and idiosyncratically defined," Mr. Kraus said. "There is much more of a personal, individual, customized sense of what luxury is. Clearly, luxury continues to evolve."
Final Take
Jen King, lead reporter on Luxury Daily, New York