Special Feature Section | HIGH EXPECTATIONS

(In)conspicuous Consumption

Revealing the realities of the new luxury market, its very particular consumer, and the new experience luxury retailers are delivering today

BY ERINN MORGAN

While the luxury market is in a state of recovery, luxury consumption of goods and services is a long way down from pre-recession numbers.

“The luxury market is still bullish, but with one caveat; the ‘aspirational’ or ‘symbolic’ buyer community—people with household incomes of $150K to $300K—is still recuperating from the down market that whacked everybody in 2008 and they are not fully back,” says Gregory J. Furman, founder and chairman of the Luxury Marketing Council.

According to Unity Marketing, its Luxury Consumption Index was at 102.7 in the third quarter of 2004—10 years later, this number rang in at 58.7 in the third quarter of 2014. Still, this is a notable recovery from the LCI of 40.3 reported in the third quarter of 2008.

Certainly, the recession took a major toll on the luxury market. And, while luxury is not lost today, it definitely has a new face—along with new values and expectations. Many are looking to millennials, the next boom generation coming of age, as a new face of the luxury market.

“About 80% of the affluent come from a middle-class background,” says Christopher Ramey, president of AffluentInsights.com. “In times of crisis, the affluent revert back to their roots. But, the ultra high-net-worth individuals have been driving the luxury category. The rub is that, before, half of all luxury purchases came from the aspirational market—and that piece still hasn’t returned.”

Experts agree that while the luxury market is much more austere than in its days of glory, there are many new and positive directions. “The new luxury market has a huge amount of potential,” says Ken Nisch, chairman of JGA, a retail design and brand strategy firm headquartered in Michigan. “I am more concerned about the traditional luxury market, however, as there are big challenges to face if you are focusing on the old luxury market and not building a path to the new luxury consumer.”

A NEW CONSUMER

What does today’s burgeoning luxury consumer market look like?

For starters, those consumers are much more cautious about their purchases.

“Value is imperative,” says Ramey. “Fortunately, luxury brands bring value as status symbols. This is particularly true for the younger generations who are becoming increasingly important for luxury brands.”

Ramey adds that baby boomers, conversely, are less important in the luxury landscape as they are older and buying less, partly because they have most everything they need and want already. “We used to say that 60 was the new 45 but, since the recession, the pre-recession 60-year-old is now 65 and acting their age,” says Ramey.

According to Unity Marketing, the luxury market is bifurcated into two groups—the HENRYs and the Ultra-affluents. The HENRYs (High-Earners-Not-Rich-Yet) are a mass affluent consumer group with incomes between $100K and $250K. They are more than 22 million households strong. Post-recession, this group is saving money, trading down to less premium brands, engaging in new ways of shopping to find luxury for less, and making the occasional splurge-worthy indulgences.

“To illustrate how radically different the situation is now, we saw in 2007 that the buying of aspirational buyers was so robust that many luxury brands were starting to launch lines that were slightly more affordable—and that isn’t happening now,” says Furman.

The Ultra-affluents (aka the 1%, with incomes above $250K or with over $1 million in amassed wealth) are 3.7 million households strong in the U.S. (10.7 million globally), according to Furman. While members of this group, which spends twice as much as HENRYs spend on luxury goods and services, are confident about their financial status, their new buying M.O. is inconspicuous consumption—invisible logos (and brands) rule, along with luxuries enjoyed at home—plus FedEx and personal home delivery services.

Many also point to millennials as the generation to watch in the luxury arena. But this up-and-coming group, which is 80 million members strong in the U.S., demands a whole new experience. “Millennials are more inquisitive instead of acquisitive, so brands really need to work to reach them,” says Nisch.

According to Furman, millennials are beginning to eclipse baby boomer spending on luxury goods and services. “The boomers have it all, but the millennials are hitting their stride as major consumers of luxury products and services,” he says. “The millennials are between ages 24 and 39 and since research shows the major luxury spending starts occurring more in the 39- to 40-year-old zone, a massive bubble in their spending is on the horizon.”

Even better news for optical retailers? Watches and eyewear are major luxury fashion statements for this generation, adds Furman.

THE NEW LUXURY EXPERIENCE

What are today’s more discerning and more frugal luxury consumers looking for in their products and shopping experience? According to Ramey, these customers are expecting more than ever from brands, products, and services. They want a product or service with extra value added in.

“Integrity, quality, and transparency are the keys,” he says. “Brands will always be important. But, they aren’t driving business unless luxury consumers believe value and quality also exist.”

Thus, according to Ramey, successful luxury retailers have a specific point of view—and they constantly illustrate distinction. “Customers shop where the messaging best resonates with them and when they understand who you are and your values,” he says. “We used to say, ‘You are what you eat.’ Then it became, ‘You are what you buy.’ Now, it’s become, ‘You are what you value.’”

When it comes to eyewear, Nisch says the true luxury customer sees eyewear as an accessory—a product that is functional but with a personality. “The new [HENRY] consumer wants to pre-shop and look at things at home,” he says. “They are looking for a smart experience and they are really focused on the delivery of service in store.”

Nisch adds that the Ultra-affluent consumer is typically not insurance- or income-bound and they are often recreationally buying. “This consumer wants to be pampered,” he says. “They say, ‘Let’s take our time, give me a cappuccino, and let’s sit down. They desire luxury more in terms of the nuance and the trappings and the recreational part of it.”

Want to know moreABOUT THE LUXURY CONSUMER?

VISIT THIS VIDEO BY LUXURY EXPERT PAM DANZIGER OF UNITY MARKETING.

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NEW LUXURY STRATEGIES

One strategy that luxury brands and retailers are following is to win a greater share of the luxury consumer’s wallet through collaboration with other brands and retailers—including things like database sharing and joint events.

“All luxury brands have about 60% of the same customers as their competitors but it’s just not the same 60%,” says Furman. “By joining together, each can pick up a 30% share of new customers that neither of them have in common.”

Another concept is to measure their luxury experience not by other eyewear retailers, but by other experts in the luxury experience. “What’s important for eyewear retailers to know is that this new luxury consumer judges them by the experience they deliver,” says Ramey. “It’s not enough to compare yourself to [a competitor]; you have to compare favorably with the Ritz-Carlton—that’s the experience they are used to and that’s what they expect from you. Anything less than that demeans your brand and the opportunity to reach that customer.”

In addition, some retailers are targeting this new customer with personalized products and services. The millennial customer, in particular, wants a shopping experience that is new, different, and exciting. They desire a more bespoke and participative buying process.

“They are looking for a personalized, customized experience where they are able to have an influence on the product or service they’re buying, such as a Hermes bag where they can select the buckle, the inside of bag, and the material,” says Furman. “If it’s a trip, they want to plan it and meet the indigenous people.”