Commentary

The Mood Lightens

by Stephen Kraus , Op-Ed Contributor, July 17, 2013

“Even the darkest night will end and the sun will rise.” Victor Hugo, Les Misérables

As 2013 moves into its second half, we find that the Affluent mood has lightened significantly. We’re not yet seeing an unbridled optimism, or a return to 2006-era carefree spending. But we are seeing an appreciable drop in pessimism across a variety of metrics, as well as growing spending and luxury interest in many marketplace categories.

We define Affluents as adults with $100K+ in annual household income; approximately 20% of the U.S. population, Affluents hold nearly 70% of the net worth, and account for a majority of consumer spending in many categories. Consider these half-dozen signs of a lightening Affluent mood from our latest surveys:

1. Economic pessimism drops: Pessimism about the economy dropped four percentage points in June, to 36%, while optimism remained stable at 42%. Also dropping: unemployment concerns, continuing a trend seen throughout much of 2013.

2. More seeing light at the end of the tunnel: “Recessionary mindsets” are becoming less common, and a growing number feel that the recession is over for themselves and their families.

3. Less uncertainty-fueled investing: It’s often said that the stock market hates uncertainty, and I’ve often pointed out that gold loves uncertainty. After a long-running bull market for gold, the percentage of Affluents considering gold to be an excellent or good investment at this time dropped to 43% – into a three-way statistical tie with stocks and real estate.

4. Broadening luxury interest: For many months, our indicators have suggested luxury spending growth for Ultra Affluents ($250K+ HHI); June 2013 marked the first month in which our indicators suggested luxury spending growth among the broader group of Affluents as well.

5. Travel taking off: As summer began, more Affluents were expecting to take summer vacations. Also trending up: longer trips, beach vacations, trips to major cities (both domestic and international), and visits to wineries/vineyards. Trending down: driving vacations, and visits to family/friends.

6. Auto interest accelerating: Our Barometer data suggest that Affluent interest in luxury autos is on the rise, as is their interest in paying cash for vehicles. These findings dovetail with auto industry data released in July which found auto sales to be returning to pre-recession levels.

Clearly, the Affluent mood is lightening. If these trends continue, the mood of Affluent-focused marketers will lighten as well.

affluent

7 comments about "The Mood Lightens".

Check to receive email when comments are posted.

Judith Brower fancher from Brower, Miller & Cole, July 17, 2013 at 11:50 a.m.
Thank you for being realistic in your concept and siting great statistics. Every time there's a recession, pundits say "people will never spend freely again, they will only shop at discount stores, etc." I always wonder what they are talking about. I can't wait to start using limos again!!
Reply

Judith Brower fancher from Brower, Miller & Cole, July 17, 2013 at 11:51 a.m.

And yes, I know the word is citing. Apparently you can't edit here the way you can on FB.

Paula Lynn from Who Else Unlimited, July 17, 2013 at 7:09 p.m.

The $100,000 used as affluent is archaic. A family of 4 living in modest house, saving/investing for higher education and retirement as well as living some sort of middle class life are not shopping at Tiffany's or taking huge vacations unless they are increasing their debt and not saving (problems to come). You are right about the spending. They never stopped. They just didn't show it as much. As the saying goes, furriers did not feel the depression.

Stephen Kraus from Next Level Sciences, July 17, 2013 at 9:35 p.m.

Thank you, Judith and Paula, for your interest and your comments.

One note about the definition of “Affluent”: we have historically defined “Affluent” as the top 20% of the US in terms of household income, which today translates as $100K+ in annual household income (at least on a national basis – $100K+ HHI puts you in the top 40% or so if you live in NYC or, like me, in San Francisco).

We often segment the population in terms of Affluent ($100K+ HHI), Ultra Affluent ($250K+ HHI) and Wealthy ($500K+ HHI). You are certainly correct that “Affluents” (sometimes described as “mass Affluents”) are mostly occasional and aspirational in their luxury interest. For truly high-end offerings – such as something from Tiffany, or a private jet, or multi-million dollar vacation homes – Affluents are not the primary target for most brands. For offerings like that, a much more high-end target is needed.

Paula Lynn from Who Else Unlimited, July 18, 2013 at 9:24 p.m.

It doesn't matter what the standard definition is which I had used to my benefit when I could in the past, too. It doesn't make sense. $250K HH is not ultra affluent. The difference is between statistics and reality checks.

Gordon Greenfield from Sarasota Orchestra , July 19, 2013 at 2:14 p.m.

I do agree with Paula that $100k isn't what we normally consider "affluent" and $250k isn't "Ultra Affluent" in today's economy, especially in major, high expense cities. But I also feel that it is a semantic issue. The data is helpful and the interpretations by Stephen seem valid. They top 20% of the American population appears to be feeling better about the economy and about expenditures. I'm on the product marketing side. Certainly, if I sold yachts, neither the affluent or ultra affluent, as Stephen defines them, would be particularly interesting to me. But since the luxury (completely discretionary) product that I market is in the $150 to $1,000 price range, I'm particularly interested in how the top 20% of the population is feeling and spending. Feel free to argue about semantics, but I very much appreciate Stephen's insights and will consider that in my marketing plans and forecasts for the coming year. Thanks much!!!

Stephen Kraus from Next Level Sciences, July 22, 2013 at 8:48 p.m.

Thanks for the great comments, all. I would agree that semantics can cause confusion on this issue.

We use pretty straightforward operational definitions for Affluent ($100K+ HHI), Ultra Affluent ($250K+ HHI) and Wealthy ($500K+ HHI). [It’s worth pointing out the average income in each segment is about twice the threshold for entry – e.g., average income among Ultra Affluents is a little over $500K].

But some people use the term “affluent” to mean the “best target for high-end luxury” or “those who live a consistent luxury lifestyle”.

Thinking about luxury circa 2006, in our terminology, Affluents (at the time, widely called Mass Affluents) were the “aspirational luxury shoppers” who drove the market. As the recession hit, luxury marketers have done well by focusing more upscale, on more traditional luxury targets such as Ultra Affluents and the Wealthy. For reference, the Wealthy, defined as $500K+ HHI, have an average income of nearly $1 million, and a net worth of nearly $4 million, which would start to put you in the market for truly elite offerings in many categories.

So when people say something to the effect of “$100K+ HHI isn’t affluent,” I would tend to agree if their meaning is something along the lines of “$100K+ HHI is not the best target for high-end luxury.”