In a recent talk at the Hackers on the Runway conference in Paris organized by TheFamily, marketer-extraordinaire Seth Godin asked “Is Digital the End of Luxury Brands?” Rather, the question should be “Is the Digital Generation, i.e. the Millennials, the End of Luxury Brands?” Unity Marketing supports brands examine the disruptive influence of the demographic shift in the target market for luxury and help brands bridge the gap between the current consumer demographic to the next – the Millennials.
Today luxury brands face a generational shift in the demographics of the target market, from maturing Baby Boomers (born 1946-1964) to Millennials (born 1980-2000).
Demographic disruption is the biggest challenge that luxury brands will face over the next 10 years. And this disruption is happening in the largest luxury market in the world: the United States. The impact of demographic disruption will be felt by luxury brands both near and far because very simply, the U.S. luxury market ( €64,9 billion in 2014) dwarfs that of any other market in the world. It is larger than the four next largest markets combined – Japan (€18.1), Italy (€16.1), France (€ 15.3) and China (€ 15), according to statistics compiled by Bain/Altagamma.
Luxury brands must develop strategies to successfully bridge the abyss between the market’s current consumer demographic to the next – the Millennials.
Today luxury brands face a generational shift in the demographics of the target market, from maturing Baby Boomers (born 1946-1964) to Millennials (born 1980-2000). Both generations are about equal size, give or take 75-80 million people, but not of equal spending power. Affluent Boomers have already made their money, accumulated wealth, as well as acquired the luxury lifestyles to which they aspire. Their appetites for luxury has turned primarily to experiences and they simply don’t have much interest in luxury goods any more.
Millennials are still on the road to affluence, as the leading edge of that cohort is only 36 years old, and not yet reached his or her stride in terms of income or wealth. With people reaching their highest income levels between 35 and 54 years of age, the window of affluence, it will take until about the middle of the next decade, around 2026-2029, until the Millennials reach critical mass in the affluence window. Not till then will they have enough spending power to potentially drive the next luxury boom.
So until the middle of the next decade that leaves the significantly smaller Generation X, about half the size of Boomers and Millennials, in the age range that marks people’s lifelong income peak and so their highest potential as customers of luxury brands. But the simple fact is, the relatively few affluent GenXers can’t fill the gap left by affluent Boomers as they age out of their highest-earning and spending years. And it will take another ten or so years before enough Millennials reach their peak of affluence and have the ample money to spend to grow the luxury industry.
Between now and then brands will experience a ‘Luxury Drought’ brought on by a change in demographics which will disrupt the forward momentum and growth of the luxury industry. The Luxury Drought will be marked by slowing growth and increased competition that will descend upon the luxury market.
The growth years that the U.S. luxury market experienced during the 1990s and first part of the 21st century was due largely to the movement of the gigantic Baby Boom generation into the age ranges that define the window of affluence. For luxury marketers that means that the good times of easy growth are over and competition will get fierce in the luxury industry as a much smaller target consumer market of affluent GenXers becomes their primary customer.
Opportunity lies just over the horizon: Rapidly growing numbers in the 25-to-34 age range – But they are not as affluent
For luxury brands, the population projections show powerful opportunities emerging for luxury marketers that can tap the potential of the 25-to-34 year olds, the Millennial cohort. While these consumers have less income and so less money to spend on luxury, being younger they have a powerful appetite to acquire more material possessions. Further, until Millennials’ incomes start to grow, the generation’s most highly educated consumers with the best prospects for achieving high levels of incomes as they mature will start their ascent up the income ladder as HENRYs, the mass affluent High-Earners-Not-Rich-Yet with incomes $100k-$249.9k.
Luxury marketers will be best positioned for success in this luxury drought period that will extend through the middle of the next decade if they focus on young HENRYs, aged 24-44 with incomes $100k-$249.9k where the most potential customers are and with the greatest appetite to accumulate the material trappings of a luxury lifestyle. To do that, luxury brands must have their fingers on the pulse of the young HENRYs on the road to affluence.
Brands must understand that luxury doesn’t mean the same thing to the next generation as it did to their parents’ or grandparents’ Boomer generation, so brands must adapt to the Millennials unique perspective on luxury. The key challenge for luxury brands and the young HENRYs is not about how they connect – internet marketing tactics – but how to create new and compelling reasons why their brands are meaningful and important to this digitally-empowered generation.
In marketing, demographics is destiny – Get the facts & figures, along with insights and support to overcome the Luxury Drought
Unity Marketing offers a range of research reports and services that will give you access to and insight into the young HENRYs, who are the gatekeepers for the future luxury market.
- Get Introduced: I just published a mini-book, entitled What Do HENRYs Want, that provides a quick overview of the HENRYs and how to connect with this emerging demographic. It includes a look at brands that are capturing the brand loyalty, and spending power, of the HENRY customer.
- Get an Overview: Unity Marketing has just released a short, but sweet report with key facts and figures on the affluent consumer market for luxury. Entitled Luxury Consumer Demographics, Purchases & Spending Snapshot Report this succinct trend report presents the busy marketer with “just the facts, ma’am” in order to help them assess opportunities and shifts in the demographics of the affluent consumer market for luxury goods and services, including seven years of trends in what luxury goods and services affluent consumers are buying, how much they are spending and the trends in where they are making their purchases.
- Dig Deeper:Unity Marketing offers a comprehensive trend report, Millennials on Road to Affluence: Mapping a Path to the Next Luxury Generation, that goes into depth about this emerging demographic customer that is the future for luxury brands.
- Get Up-Close & Personal with young HENRY:Unity Marketing is expert at giving marketers access and understanding of the HENRY customer that is their best and brightest prospects today and tomorrow. We provide both qualitative and quantitative research with HENRYs, defined by income, age and gender. Call me at 717.336.1600 or email email@example.com to meet the young HENRYs, key to your brand’s future. Learn more about our custom research services by clicking here.