In a recent blog, economist Harry Dent reported, “The Affluent Market Is Finally Fading…and Fast.”  He studies demographic trends and his forecasts are based upon the predictable shifts in consumer spending that coincide with the aging of consumers:  the Generational Spending Wave.

He reports that the latest generation of the most affluent American consumers reached their peak in spending in 2015 and now are starting to retreat.  He writes, “the more affluent – the top 10% to 20% – didn’t peak until late last year, 2015. In other words, up until now their spending has still been driving the economy. Going forward, that will be less and less the case.”

The cutback in affluent consumer spending is playing out in the stock market. The S&P Global Luxury Index is tanking, as a result.

Dent calls this shift in affluent consumer spending the ‘demographic cliff.’  I call it the ‘luxury drought’ – but whatever it is called it amounts to the same thing:

Demographic disruption brought about by a generational shift in the demographics of its U.S. target market, from maturing Baby Boomers (born 1946-1964) to Millennials (born 1980-2000).  Both generations are about similar in size, but not of equal spending power.

While all luxury brands must confront generational disruption, there is one segment of the consumer market that still offers strong growth potential in the luxury drought.  It is young HENRYs (high-earners-not-rich-yet) consumers aged 24-44 years.

These young HENRYs don’t aspire to own luxury brands for traditional status or show, but seek lasting quality and ultimate performance.  Today, good quality products are readily available at every price point.  To trade up to true luxury brands, HENRYs need a powerful, compelling reason that speaks to their unique mindset and values.   One international luxury brand has assessed the opportunities and now is focused on marketing to HENRYs.

How TAG Heuer Is Making Rain in the Luxury Drought

The demographic shift and the disruption it causes for luxury brands requires new strategies to position brands for the next generation that have not yet reached their income peak.  LVMH understands the need and has taken steps to reposition the TAG Heuer watch brand for the young HENRYs.

In the ‘boom-boom’ pre-recession years, TAG Heuer got greedy and moved up market, abandoning its more affordable $2,000-$5,000 price point to push into the $5,000-$10,000 price range.  It worked for a time, but then it hit the wall.

Today under new management more attuned to the realities of marketing luxury brands to the next generation, TAG Heuer has gone back to basics to its more affordable, yet still very luxury $2,000-$5,000 price range.  The brand has kept its high-performance, high-tech positioning with a new “Don’t Crack Under Pressure” tag line featuring youth-skewing athletes and celebrity brand ambassadors, like Super-Bowl champ Tom Brady, super-model Cara Delevingne, and tennis star Maria Sharapova.  TAG Heuer also recognizes that today’s women, as well as men, appreciate the high-performance promise that is a foundation of the brand.

In looking to the brand’s future, it has just introduced the Connected smartwatch to compete with Apple, priced at a very competitive $1,500, designed and built with Intel and Google, using its Android Wear operating system.  Yet at the same time, TAG Heuer hasn’t abandoned its legendary past and continues to offer its classic Steve McQueen line, in honor of a man who lived an extraordinary life and because he never grew old, remains a stylish role model for young HENRYs.

Demographics Is Destiny

How do other luxury brands make rain? Marketers will be challenged to convince less-affluent consumers that splurging on high-end products and services is a good idea.  To succeed, brands must understand that luxury doesn’t mean the same thing to the next generation as it did to their parents or grandparents. Brands must adapt to the young HENRYs unique perspective on luxury.  For them luxury is a mindset, not a brand or price point.

The key challenge for luxury brands and the young HENRYs is not about how they connect – internet marketing tactics are a given – but rather on how to create new and compelling reasons why their brands are meaningful and important to this digitally-empowered generation.

My new mini-book, What Do HENRYs Want?, will be your guide to understanding the HENRYs, assessing the opportunities and positioning the brands for growth.