Affluents Are Enjoying the Little Things in Life – Resisting the Temptation to Over-Spend & Liking It

Affluent consumer confidence took another turn for the worst in the second quarter 2015, according to the latest survey conducted by Unity Marketing. The five key measures of how affluents feel about the overall economic health of the country and their personal financial situation all dipped in the most recent survey after rising in the first quarter 2015. “The LCI – Luxury Consumption Index – stands only about 9 points above its lowest point during the recession, in 4Q2008,” reports Pam Danziger, president of Unity Marketing and lead researcher in the most recent Affluent Consumer Tracking Study.

“But the climate today is very different from that back at the end of 2008. Unlike the hang wringing and doom saying we saw during the depths of the recession, affluents have gotten on with their lives. They have adjusted to a level of lower expectations and they are doing just fine. Sure, they may still miss some of those free-spending days before the recession hit, but they are finding pleasures in the small, everyday things. They learned the lessons of living close to the edge of their financial limits and have grown accustomed to a ‘new normal’ where luxury is only occasional indulgence.”

“Today the real challenge is for marketers to adjust to this ‘new normal’ too of lower expectations,” Danziger says. “Yes, the rich are getting richer, but those at the top 2-3% of all U.S. households account for only about 10% of overall consumer spending, while 40% of total consumer expenditures are made by the HENRYs– high-earners-not-rich-yet consumers with incomes $100k-$249.9k—or the top 18% of households. It’s the HENRYs that gave rise to the boom in the luxury market up to the recession, but today they are living a comfortable middle-class lifestyle. In fact, the HENRYs are the newly emerged American middle-class consumers with discretion, now that the old middle-class has lost much of their discretionary spending power due to the recession. The HENRYs are also the gatekeepers for the future luxury market, but today they simply aren’t buying into it.”

Demographic Forecast: Luxury Drought

The ‘new normal’ for the luxury market means a slow down in the rate of consumer purchase and a reduction in consumer spending at the high-end. Unity Marketing calls this the ‘Luxury Drought.’ Why? Very simply: Demographics.

Danziger explains, “Consumers reach their peak earning years between 35 and 54. This period also corresponds to the years when consumers spend the most. But today, the Baby Boomers, born 1946-1964 and aged 51 to 69, are rapidly advancing out of that range. The GenXers that follow, aged 36 to 50 years old, are roughly half the size of the Boomer generation. As a result, they will not, cannot pump enough dollars into the consumer economy, including the luxury market, to make up for the loss of the Boomers’ spending power. That means the U.S. economy as a whole, and the luxury market in particular, are facing a crisis: not enough customers with enough spending power to keep all the brands, the retailers, and the marketers going, not to mention, growing. The consumers have already adjusted to the reality of lowered expectations. Now it is time for the marketers.”

Economist Harry Dent explains the impact of demographic shifts in consumer demand and spending. He says, “People spend sharply more between age 19 and 39 as they get married, have kids, and build their households. Those between age 27 and 41 purchase most of the homes, which is the largest and most leveraged purchase they ever make. They enter a high plateau of spending, on average, at age 39, hit the peak at 46, and decline sharply after 53. It’s that plateau, between age 39 and 53, that’s so important. The generation responsible for the most consumption in our economy, the boomers, first hit that plateau in 2000…We hit the end of this plateau in 2014 when the peak boomers hit age 53. As you can see, their spending will decline more dramatically in the years ahead. This is when the real demographic cliff hits. Nothing will entice them to spend what they did in that 39 to 53 year plateau. Nothing!”

Call it the demographic cliff, as Dent does, or the luxury drought, as Unity Marketing, it means one thing: The luxury market is not going back to the way it was before the recession or even during the brief period following when pent-up demand resulted in a temporary period of increased spending. “We are in for a long, tough period of reduced consumer demand and spending. Marketers will need to get their best game on through the rest of this decade and into the middle of the next, when the Millennial generation, about as big as the Boomers, reach the age of affluence. Until then, Unity Marketing can keep you on top of the trends in affluent purchases spending, so you can focus your product development, marketing and branding investments on the customers that will make, or break, your future.”

The affluents surveyed in Unity Marketing’s Affluent Consumer Tracking Study ‘Shopper Track’ represent those with incomes in the top 20% of U.S. households, which in the current economy starts just a shade above $100,000. A total of n=1,313 affluent luxury shoppers were surveyed at the end of April/early May about their most recent luxury shopping experiences, as well as their participation in luxury experiences, such as travel, dining, spa/salon and physician discretionary services.

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