Affluent consumer confidence, as measured by Unity Marketing's exclusive Consumption Index (LCI), was up slightly in early January 2014—but affluent consumers show more inclination to save and invest in the next 12 months than they do to spend more on luxury/high-end products.
"In early January the affluents see their personal financial situation improved over the past three months and they foresee continued improvement for the rest of the year," said Unity Marketing President Pam Danziger. "However, only 22% of the over 1,300 luxury consumers surveyed expect to spend more on luxury or high-end goods and services in 2014."
She said that, in this regard, the previous two years started out stronger:
• at the start of 2011 28% expected to spend more on luxury products in the coming year
• at the start of 2012 26% expected to spend more
"That means 2014 is shaping up to be challenging for companies and brands that target the affluent heavy-lifting shoppers, who make up only 20% of U.S. households, but account for more than 40% of total consumer spending," Danziger said. "Marketers need to understand the consumers' cautions and position their brands as a value proposition that is an investment in their lifestyle that will deliver greater comfort, beauty and quality."
The survey went to affluent consumers, with average income of $260,000 and average age of 47.5 years, who bought one or more luxury or high-end goods and services in the fourth quarter 2013.
Unity Marketing's quarterly ACTS survey measures two tiers of affluents:
• the ultra-affluents (HHI $250,000 and above)
• HENRYs (High Earners Not Rich Yet), which Unity Market considers to be the "mass affluent"
"One big takeaway - the market for luxury goods and services consists much more of the upper-middle class (i.e. the HENRYs) rather than the true upper class (the ultras and top 1%)," said Tom Bodenberg, Unity Marketing chief consumer economist. "While the purchases of the upper class (mansions, yachts, jets, etc.) may garner far more media attention, their small population translates into a smaller market for luxury. However, there is a much larger market merely one notch down - who have deep aspirations toward emulating a wealthy lifestyle, even if it means some sacrifices will be required in household consumption. But, this market appears to be the one most troubled by current events."
While HENRYs spent less than half as much as did ultra-affluents on luxury and high end purchases during the fourth quarter ($6,547 as compared with $14,994), their much greater numbers (approximately 22 million households) mean that the total value of the HENRY market is about four times that of the ultra-affluent market (approximately 2.5 million households at the top 2%).
"Marketers have historically felt that ultra-affluents were their ideal consumer, but there simply aren't enough ultra-affluents to keep high-end luxury brands afloat," says Danziger. "Instead, luxury brands need to broaden their reach to include the HENRYs. This creates a unique challenge, as they are now competing with mass market brands that would also like to reach up tap into HENRY spending."
In many key categories of the luxury and high-end market, HENRYs are statistically on an even keel with ultra-affluents when it comes to making purchases (i.e. the percentage share of affluent households that made a high-end purchase). Last quarter HENRY demand for high-end home and personal electronics, major home appliances, and other luxury items matched that of ultra-affluents, even while their spending in these categories was somewhat lower than that of ultras.
Unity Marketing results show that, in the coming three months, HENRYs are on par with ultra-affluents for planned purchases in several categories.
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