Across the globe, luxury consumers, whose numbers and wealth are growing at a phenomenal pace, are experiencing an uneasy sense of déjà vu. “It’s feeling a lot like 2007,” says Cara David, managing partner at research firm YouGov, reporting the results of its Affluent Perspective Global Study among nearly 6,000 of the top 10% affluent consumers around the world.
In the 13 markets surveyed, and most especially in the U.S., which represented the largest affluent consumer sample surveyed and which also is the world’s largest market for luxury, enthusiasm to spend more on luxury is waning. The share of affluents who say they expect to spend more on luxury has dropped sharply, from 40% in 2016 to 31% in 2018 – a statistically-significant 9 percentage point decline.
The pull back on spending most especially is felt by affluents in the most developed luxury economies, notably Australia, Hong Kong, Germany, Japan and the U.S. By contrast affluents in the Middle East and Asia are level in their expectation of more luxury spending. But they can’t make up for the shortfall in declines in the developed markets, with an expected slide of negative 3% in expectations for greater luxury spending in the next year. And the downward trend is even more pronounced in North America where the net decline reaches -7% overall.
Commenting on the results, Chandler Mount, VP, Affluent Perspective at YouGov, explains, “There are two forces going on. While there is a growing wealth class, at the same time there is an emotional pull-back. They don’t feel as confident as they could or they did in the past.”
This doesn’t necessarily mean doom and gloom for luxury brands, however, since there are more people in the wealth class that can afford to indulge in luxury. The growing numbers of affluents can make up for reduced spending at the personal level, but he cautions, “We might see an increase in the luxury market, but it is going to be harder to get.”
Luxury brands don’t see this coming
These results forecasting reserved consumer spending on luxury stands in stark contrast of the luxury industry’s perspective for a bang-up year in luxury in 2018. the coming year. In Unity Marketing and Luxury Daily’s State of Luxury study conducted among a sample of 600 luxury industry insiders, nearly half of all luxury industry executive surveyed expect business conditions to improve in the luxury market in 2018.
Regarding prospects for their own company, luxury insiders are even more optimistic for their companies in 2018. Over two-thirds feel their businesses will do better next year.
In this the luxury industry insiders surveyed mirror the positive expectations for the industry predicted by Bain & Co. Bain expects overall growth of 5% for the global personal luxury goods market, after what it calls a “reboot” from 2015-2016. Through 2010 Bain sees the luxury market reaching a “new normal” of 4%-5% annual growth through 2020.
The YouGov survey, however, challenges these positive expectations.
Dark clouds on the horizon
The chief factor putting the brakes on luxury consumer spending is their lack of confidence in the world’s and the nation’s economy. This is where the sense of déjà vu is coming from. “This well-informed, educated group was impacted one way or another by the Great Recession,” David says. “We believe this pull-back in spending is a result of a variety of reasons, primarily their concern for the U.S. economic future.”
While the world’s affluent consumers are less confident in the world’s economy, they are more so about their own personal economy with 44% feeling extremely or very confident in their own finances. But this too is taking a dive in Japan, Hong Kong, France, Singapore and the U.K., most especially. Affluents in China are the outliers, feeling the most confident in the world’s, their country’s and their personal economies.
Interestingly, if lack of confidence in the greater macroeconomic factors that consumers have virtually no control over is pulling their expectations for future spending down, these are the same factors which luxury industry insiders also saw as potentially disrupting their businesses in 2018. However, the luxury insiders believed that their companies should be able to overcome the negative effects from political turmoil, monetary policies and broader economic trends that could derail their growth in 2018.
Given the results of YouGov’s latest survey, the luxury insiders may have a sense of false confidence.
Troubled times, emerging opportunities
On a global basis, luxury automobiles may take the biggest hit, with a net -10% expectation in spending, with Mount saying that 2017 may have been the category’s peak. Luxury cruises are also expected to see reduced spending, off 8%. Luxury jewelry/watches, fashion, and hotels will feel consumers’ tightened wallets, but only in the -3% range. By contrast prestige facial skincare and beauty should hold its own.
For the U.S. market, David predicts a pull back in most every category, with jewelry/watches and fashion impacted the most. “This disciplined approach in spending, combined with other factors disrupting the luxury sector, will make for a very competitive marketplace,” she warns.
However, two bright spots are emerging in the luxury market: Luxury hotels and entry-level luxury.
Affluents express a clear cut preference for experiencing luxury as opposed to owning luxury. And the primary luxury experience they are looking for is a luxury vacation, with 66% of those surveyed saying they’d take a “luxury vacation over luxury products any day.”
In terms of their brand choice in experiences, Mount points to innovation as a key brand value. “The role of technology as a predictor of satisfaction in brand choice is increasing,” he says. What that means for luxury hotels is a growth opportunity for those that innovate by bringing technology enhancements into their hotel properties and rooms.
Affluent travelers expect automated check in, digital keys, digital payment on the property through mobile apps and full-service functionality throughout. They also are keen to have login access to personal entertainment streaming services from the room TV, Bluetooth integration in the room sound system and screencast from their personal devices. And in the future they are looking for an in-room digital assistant and biometric reads in check in, digital key and payment systems.
Opportunities in entry-level luxury can be found thanks to the rapidly growing numbers of millionaires new to the luxury lifestyle. “Some 11.5 million have been added to the millionaire class globally,” Mount says. “So entry-level luxury is poised to grow.”
But those brands that want to tap the potential of the new-wealth consumers need to be mindful of what they are looking for in brands they choose to do business with, and it isn’t what it used to be. It no longer is enough to offer good quality and craftsmanship. Luxury brands need to be good and do good, not just make good products.
“Changes in Latitude, Changes in Attitude”
In tracing the trajectory of consumers’ attitudes toward luxury indulgence since 2002, the study identifies four key pivot points. In 2002 the luxury consumers had an overpowering conspicuous- consumption drive which came to an abrupt end with the recession. “In 2007 it hit them like a ton of bricks,” says Mount. “They bought too many houses, too much stuff to put in them, and too many cars. Resourcefulness, simplification and comparison shopping became the name of the game.”
Then in 2012 as the economy got stronger and consumers felt more confident in their jobs, luxury consumers’ mood turned from saving money toward getting the most value out of the purchases they made. “The search was on for how to spend money for the best stuff. It became a drive for quality, craftsmanship and service provided by a brand to justify the price that they would spend. It didn’t return to a question of, ‘How do I buy more houses and fill them with more stuff?’, but ‘How do I buy the best stuff I possibly can?'” he says.
In 2018 this mindset has continued to evolve beyond just a search for quality, craftsmanship and service to looking for purchases that give more meaning. “They are looking for brands that serve a higher purpose, that reinforce and mirror their personal values,” Mount explains.
A search for deeper meaning
They call it a trend toward “Goodness-based spending.” Overall 4 out of 10 affluent decision makers see that luxury brands have very similar quality and craftsmanship. What they want now is brands that express values in line with their personal values. “It is a search for deeper meaning,” David says.
The values affluents hold most dear in the brands they align with are honesty, being relatable, committed to do the right thing, that share their personal values and follow sustainable practices. A decisive 71% of luxury consumer surveyed said, “I am looking to connect with brands that make a positive impact on the world.”
“Luxury consumers are searching for stability and security in a world where things are unstable and security is questioned,” David says. “They value inner peace for a number of reasons, one of which is finding their place on the right side of an unbalanced world.”
Luxury consumers are looking for brands with a higher purpose. They want their purchases to help them attain their ultimate personal goals, which in the survey include being healthier, spending more time with family, going to new places and doing new things, learning something new, to be a better person and simplify their life.
For the affluents their relationship with brands has become very personal. They are seeking to align with brands that are a mirror of themselves and their personal values. Exceptional quality, craftsmanship and service are simply table stakes. “They are looking for brand perfection, to be flawless,” David concludes. “Their high standards have to be luxury brands’ high standards.”