At a recent NYC Luxury Marketing Council meeting, Linda Ong, CEO of TruthCo., an omnichannel branding firm, said: “In 2017, Millennials will eclipse Baby Boomers in luxury spending.” Sounds impressive and reassuring. But whether or not this prediction is true, this sound bite says nothing about what it means for your particular brand. Nor how to make sure your brand gets its fair share of that future luxury spending.
Let’s reveal the nuances behind that statement:
This will be true: Millennials will match, then overtake, the Baby Boomers in spending in every market segment that they participate in. Generational demographics tell all. The Millennial generation, born from 1980 to 2000, number 78 million in the United States. At their peak, Baby Boomers, born from 1946 to 1964, numbered 76 million, but are fewer now. Whether Millennials will overtake the Boomers in 2017 is up for grabs, but even if they do, 2017 will not be the Millennials’ peak years in the luxury market. That won’t happen until about the middle of the next decade.
Until about 2025, the luxury market is trapped in a trough (Gen Xers) between the crests of two wealth waves (Boomers and Millennials)
The luxury market is experiencing the rise and fall of wealth waves: Boomers, aged 52 to 70 next year, are moving out of the prime age demographic for luxury (from 40 to 55 years), while Millennials, aged 16 to 36, are ascending and won’t reach critical mass for luxury brands until the middle of the next decade. In the meantime, Generation X (1965-1979) is the prime target for luxury brands, but they are roughly half the size of the Boomers ahead of them and Millennials behind. Gen Xers are a trough between two huge waves, and given their significantly smaller numbers, will never make up for the loss of spending by Boomers, while luxury brands wait for the Millennials to crest and grow in affluence.
Millennials will be delayed releasing their rising income into the consumer market
Millennials will reach their peak of affluence and earning power starting at age 35 and continue to build income until age 54 years or so, but their road to affluence will not follow the same path as previous generations. The U.S. economy in which Millennials are coming of age is vastly different than that of the Boomers or Gen Xers. While it is better than it was, the U.S. consumer market still hasn’t recovered from the recession. As a result, Millennials face a tight job market and those with the best prospects of reaching high incomes (i.e., the most highly educated) are under water with daunting educational debt, estimated at $25,000 - $30,000 per student. No generation before has faced such a debt load, which will delay Millennials spending their growing earnings in the consumer economy. They will have to pay off that debt before buying a home, starting families, and acquiring the material expressions of a luxury lifestyle.
Millennials won’t aspire to the same luxuries of their parents and grandparents
It is a mistake to assume that the Millennial generation will aspire to the same luxury as previous generations. This generation, thanks to the internet and how it has uncovered the “smoke and mirrors” on which the allure of luxury brands are based, are discovering they can acquire luxury quality goods at significantly lower prices. Status symbols as represented by luxury brands don’t have the same meaning for Millennials. They still value status, but for them it is status defined by who they are and what they have achieved, not how much money they spent buying some overly expensive luxury brand.
Luxury is a state of mind, not a brand or a price point. Millennials still want luxury, but luxury that expresses their personal values. The Millennial wealth wave could result in a next luxury boom starting in the middle of the next decade, but only if brands meet this new generation with luxuries that reflect their values and world view. However, if luxury brands keep doing what they’ve always done, putting status before substance, they will miss the mark. The world has changed and luxury brands must change with it.