The U.S. retail industry started out 2016 under a dark cloud after 2015 ended as the worst in retail since 2009. Excluding the automobile sector and dining services, the retail industry dropped 0.2% from previous year.
Since affluents ($100k+) account for upwards of 50% of all U.S. consumer spending, or more than $6 trillion, they overwhelmingly drive the trajectory of retail spending in the country.
Then over the past few weeks, luxury marketers got some more bad news. Bain and Company cautioned that American luxury consumers were taking a ‘wait-and-see’ attitude and that personal luxury goods demand will lag in 2016.
This was followed by YouGov’s assessment in its “Affluent Perspective Global Study” thatall but the U.S.’s 400,000 wealthiest households ($350k+ HHI and assets of $10 million or more) plan to hold back luxury spending this year.
Going into 2016, U.S. retail in general, and the luxury retail market in particular, faces strong headwinds.
The rich are getting richer, but that doesn’t mean they are going to spend that wealth.
Financially, the affluent are sitting pretty. There are some 30 million affluent households defined as the top quintile of all households, including some 27 million HENRYs (high-earners-not-rich-yet) with incomes from $100k-$249.9k and 3.8 million ultra-affluents ($250k+). In the past four years, the number of affluent households grew by ~25%, making it the fastest-growing segment in the U.S. consumer market.
But it’s not their positive financial circumstances that will influence their spending in 2016; rather, it will be their mood, feeling and mindset. The luxury market is at the pinnacle of discretionary spending and today the affluent are choosing to forego extra spending and hold onto their plentiful cash.
Align your brand with the new consumer psychology of today’s more careful affluent spenders.
The challenge and opportunity for luxury brands in 2016 is to align their brand with the new consumer psychology of affluents. Luxury brands need to recognize that in the minds of today’s affluent consumers, the definition of luxury is shifting. The old ideas of luxury have given way to new ways of interpreting and participating in a luxury lifestyle.
Especially among the Gen X and Millennial generation affluents, the old-style luxury has taken on negative connotations. For them, old luxury reeks of over indulgence, conspicuous consumption, elitism, extravagance and, most especially, reflects income inequality and the excesses of the 1%. We need to market luxury in a brand new style that reflects the next generations’ new values.
Rewards and growth will come to brands that get a firm fix on the young HENRYs, the demographic of the Gen Xers and Millennials on the road to affluence. Their incomes, $100k-$249.9k, mean that they are doing better than nearly 80% of all U.S. households, yet trail behind the ultra-affluents ($250k=). More importantly, HENRYs, 27 million strong, way outnumber the 3.8 million ultras.
Too many luxury brands call the HENRYs aspirational, which implies their aspirations align with their old style of luxury. Aspirational the young HENRYs may well be, but not necessarily for the old luxury that they are selling. Rather, they are aspirational for an authentic lifestyle and true happiness, which research shows comes by what you do and experience, not what you have or own.
The shifts in consumer psychology and the emerging generations of affluents call on luxury brands to tell new stories. They reject their parents’ and grandparents’ ideas of luxury in favor of concepts that are more practical, functional, inclusive, democratic and, ultimately, more affordable.
Surely, they want high quality, superb workmanship, and all the other quantifiable features that luxury brands promise. But they also want to align their consumer behavior with their personal values. Too many young people believe that “luxury” is just a marketers’ label that signifies something is over-priced.
So calling a brand luxury doesn’t necessarily make it so. In fact, if you have to call it luxury, it probably isn’t. Therefore, use the L-word with extreme caution and learn how to communicate luxury in a brand new style.