Instead, it is the affluent consumer who is increasing his or her spending—with much of the increase coming from those making $100,000 to $249,999 a year, a segment known as the HENRYs (High Earnings, Not Rich Yet). At least that’s the finding in Unity Marketing’s latest research report, Luxury Report 2013, covering five years (2008 to 2012) of affluent consumer behavior in the luxury market.
“The most important shift in the economy at large is the growing importance of the affluent (top 20% of U.S. households by income which represent about 24.2 million households) in driving the recovery,” said Pam Danziger, Unity Marketing’s president and author of the new Luxury Report 2013: The Ultimate Five-Year Guide to the Luxury Consumer Market released last week.
“The middle-class and lower-income folks have greatly reduced spending power, due to declining household incomes, tax changes and unemployment, so the affluent are the heavy-lifters behind all the news about retail and consumer spending growing,” Danziger said. “If you dig a little deeper into the numbers, you find it is the affluent behind all the good economic news.”
Specifically, HENRYs are driving much of the improvement in the luxury goods and services markets. By 2012, the HENRYs spending levels returned to their 2009 levels, even topping those by 3.4%. Even though HENRYs individually have a far lower spending threshold than ultra-affluents, there are about 10 HENRY households for every one ultra-affluent. That is why, with a total of 21.8 million households, the HENRY segment is a critically important part of the consumer market, according to Danziger.
Ultra-Affluents Looking for ‘Greatest Return on Their Spending Investment’
While the HENRYs have picked up the pace of high-end purchases since 2009, the ultra-affluents (those at the top 2$ of incomes of $250,000 and above) have gone in the opposite direction. Ultra-affluents spent 14.1% less on luxury since 2009 and in 2012 their spending reached its lowest level in five years.
“The latest study shows the ultra-affluents are starting to behave more like the HENRYs,” Danziger said. “For example, ultra-affluents cut back their purchases across the carefully curated list of top luxury brands included in Unity’s survey in clothing, fashion accessories, beauty, jewelry and watches. That means even the high-income ultras are trading down to less premium brands. Further in 2012 Zales bumped Tiffany out of first place as ultra-affluents’ jeweler of choice.”
Furthermore, Unity Marketing predicts that affluents will continue to act strategically in their purchasing by making tradeoffs that will maximize the luxury return on their investment. They will continue to make strategic choices about which purchases will give them the most pleasure and which situations demand a true luxury brand purchase. For example, ultra-affluents purchased more mass-market beauty brands (L’Oreal Paris, Olay and Cover Girl) than higher-end brands (Clinique, Lancome, Chanel) in 2012 and their purchase overall of mass beauty brands reached its highest level since 2008.
“Affluents are still cautious about spending on high-priced luxuries and are being strategic, like swapping high-priced Chanel lipstick for Cover Girl. They are also indulging in more of what I call ‘premium’ class goods and services—below luxury, but better than mass—so for ultra-affluents the more affordable Ann Taylor is the most purchased luxe apparel brand and Coach tops the list in luxury fashion accessories,” Danziger noted.
The affluents’ choosiness can be seen in their travel purchases as well, Danziger said. While affluents may opt to fly coach or drive to their travel destinations, once they arrive they indulge in four- or five-star luxury hotels and dining experiences. That is, they are trading up and trading down strategically based upon what gives them they greatest return on their spending investment.” www.unitymarketingonline.com
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