June 22, 2015
Luxury shopping sprees have stalled
Affluent consumer confidence dipped during the second quarter of 2015, landing slightly higher than during the lowest point of the recession, according to a new report from Unity Marketing.
Even with this dip, the landscape is vastly different than the stress and worry of 2008, with consumers now accustomed to scaling back and indulging only occasionally on luxury. Luxury brands need to recognize that a feeling of austerity is likely here for at least the next decade, and modify their strategies accordingly.
"While the customers with the ability and willingness to indulge in luxury brands is constrained in the current climate, they have an ever widening range of options to choose from when they want to and are willing to indulge," said Pam Danziger, president of Unity Marketing, Stephens, PA. "It calls on brands to deeply understand their customers, accurately assess their needs and desires and willingness to spend, and then to connect effectively with them.
"Everyone in the luxury world talks about aspiration, but the real need today for luxury brands is to give their customers and potential customers inspiration to make their dreams come true through their offerings," she said. "It will take hard work on the part of brands, doing their research and due diligence, and learning new ways to communicate with customers today. To that I say they really need good ‘luxe.’"
For Unity Marketing’s Affluent Consumer Tracking Study, 1,313 affluent consumers with incomes in the top 20 percent of U.S. households, which begins at just above $100,000, were surveyed in April and May about their recent luxury purchases and experiences.
Sinking spending
Unity Marketing tracks consumer sentiment using the Luxury Consumption Index. This last quarter, the LCI was only at nine points higher than in the fourth quarter of 2008.
Today, rather than spending in a way that pushed their financial limits, affluents are taking it easier on their luxury expenditures.
The most affluent individuals, those at the top 2-3 percent, are earning more, but they are only accounting for about 10 percent of total consumer spending. Comparatively, 40 percent of total consumer expenditures are being driven by the HENRYs, or high earners not rich yet, those with incomes between $100,000 and $249,000 who fall in the top 18 percent.
Affluent consumers are less likely to splurge on luxury at this time
Luxury brands have an opportunity to appeal to an increasingly relevant group of consumers known as the HENRYs, or High-Earners-Not-Yet-Rich, who have more spending power than the middle class and may eventually become wealthy in the future, according to a new report by Unity Marketing.
As middle-class consumers lose discretionary spending power, and the gap between the rich and poor widens, it is increasingly important for brands to focus marketing strategies on the HENRYs. HENRYs are the new face of the mass-market consumer, and brands that are able to appeal to them will gain an edge over competitors in the luxury market (see story).
Part of the shift in targeting necessary revolves around age.
Consumers earn the most money and spend the most between the ages of 35 and 54. Most Baby Boomers are now leaving that stage of their lives, and the following Gen-X population is only about half the size.
This will likely contribute to more difficult growth, as there are not enough consumers with the budgets necessary to support growth, particular in luxury brands.
Upcoming relief
The light at the end of the tunnel is the millennial generation. Typically the children of Boomer parents, this group is expected to account for the next spending rise.
As Baby Boomers age and millennials mature into established consumers, luxury brands will have to retool many of their marketing strategies to account for the generational shift, according to a new report by Unity Marketing.
“Millennials on Road to Affluence: Mapping a Path to the Next Luxury Generation” says that in approximately 10 years, the next consumer spending boom is scheduled due to the influx of millennial consumers who have traveled on the road to affluence. The consumers, who will be between the ages of 34-54 years old in 2015 to 2034, will replace baby boomers as the prime target for marketers working at both the high-end and low-end of the market (see story).
Until millennials reach affluence, luxury marketers should be buckling down and working on product development, branding and marketing that will build an image that millennials want to buy into in the future.
The first thing luxury brands need to do is recognize that the ‘luxury drought’ as I call it, or the demographic cliff as Harry Dent calls it, is the reality. Young affluents have a much greater appetite for luxury goods, in particular, than more mature consumers. Young people are in an acquisitive life stage, and so are making investments in their wardrobes, homes, lifestyles. Mature affluents on the other hand have largely made those investments and with age and maturity their spending turns toward other things (i.e. experiences) as well as saving for retirement.
"In a nutshell, more young affluents is good for luxury brands; fewer is bad," Ms. Danziger said. "Which is exactly the case today, as the huge Baby Boomer generation moves into retirement and their shift away from big investments in their material lifestyles.
"The Millennial generation that is coming along is as big, even slightly bigger than the Boomers, but they have not yet reached affluent levels of income," she said. "Further, as a generation they are going to be delayed in spending their wealth as their incomes grow because they are hampered with record-levels of educational debt.
"The GenXer generation, which right now is in its peak years for investing in luxury goods, is about half the size of the Boomers, so they will never be able to fill the gaping hole left behind as the Boomers mature out of the core luxury marketplace. Until the millennials grow in wealth and affluence, which based upon population projections, will be around 2026-2029, the luxury market will face a drought."
Final Take
Sarah Jones, staff reporter on Luxury Daily, New York
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