The New Luxury
Posted by Steve Kleber on May 27, 2011
Welcome to the Kleber & Associates blog! Here’s the latest on The New Luxury
From bank meltdowns and housing market slumps to bail outs and fears of inflation, it’s hard to ignore the effects the recent recession has had on our lives. During the height of the recession, unemployment peaked at 10.1% and consumer spending dropped significantly in all sectors. Nearly three years after it began, much has been written on the long term effects of the recession and what Americans have supposedly learned from it.
A significant finding in recent months concerns the effect the economic downturn has had on the wealthiest Americans and their purchases in the luxury category. Spending by wealthy Americans (those with annual household incomes above $200,000) has returned to pre-recession levels while spending by middle and low income Americans is still low. In the housing market, despite a 20% decrease in existing home sales between $100,000 and $500,000, sales of homes valued at more than $750,000 increased.
But the rich aren’t spending their money in the same way they used to. A study by the Harrison Group found that the shopping behaviors of the affluent have become more price conscious. Even though many of these people didn’t lose their home or job during the recession, they saw how others were affected around them and have changed their habits because of it. Affluent consumers now report using coupons, waiting for sales and buying less expensive brands more frequently than they did a year ago. Brands are having significantly less effect on luxury consumers. Forty-one percent of luxury consumers currently believe that the brands they wear say a lot about who they are as a person compared to 51% in 2008, and only 32% of luxury consumers are willing to spend more for the style and fashion of designer brands as compared to 51% a year ago.
Affluent consumers are also more distrusting of salespeople and advertisements that focus on the brand image and luxury status. These consumers instead desire one-of-a-kind items and experiences that create fond memories. They demand personal value from the products they purchase. Harrison Group vice chairman Jim Taylor says that “In the end, the increase in spending we foresee is not a return to the wanderlust of the past, but rather, an expression of sensible, resourceful, self-confident consumers expanding their portfolio of needs.”
It is also important that companies understand the changing face of the luxury consumer. In the new Ad Age Insights White Paper, “The New Wave of Affluence,” a Digitas study reports that a person’s financial standing before they are 35 is a significant indicator of what their financial standing will be later on in life. If a person reaches the $100,000-$200,000 income level before they turn 35 (labeled Emerging), they have a greater chance of crossing the $200,000 mark into the Affluent category later on in life. Because those currently in the Affluent category are spending more conscientiously now, it is the Emerging group that is most likely to see an increase in demand for luxury brands. These young professionals have secure jobs that will lead to affluence later in life and have fewer responsibilities such as mortgages and children, leading to ample disposable income to splurge on the luxury goods. And because individuals in the Emerging category are widely plugged into interactive and social media, they can be much easier for companies to reach than older, Affluent consumers.
In the post-recession environment, it is no longer acceptable to assume customers will buy luxury products solely for the brand they flaunt. As affluent consumers begin to reject their old habits of spending based on brand image, companies must be able to communicate and deliver real value to their consumers.