Archive for March, 2012

Cash & Confidence

The killer combo igniting luxury spending

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Hermès can barely produce enough of its famous Kelly and Birkin bags, priced in the thousands of dollars, to keep up with orders.

    

Sales in the luxury division of PPR (Gucci’s parent company) rose 22.1%

Neiman Marcus says its luxury customers “are spending again with confidence” and its first-quarter profits have almost doubled on higher sales.  (Source:  WSJ, February 2012)

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Meanwhile mid-level and low-end retailers are scrambling to prop up revenue with discounts and new takes on value pricing. So what’s driving the counter-trend spending surge in luxury goods? What we’re calling the Cash & Confidence Consumer: a wealthy consumer class that got a positive bounce out of the recession while just about everyone else got thumped.

 The cash: even more telling than income – net worth

  • Consumers who inhabit the now-famous 1% show income and wealth patterns quite different from the rest of the U.S.
  • By household income, the top 1% starts at about $380,000 annually – 7.5 times the median U.S. household income.

By net worth, the top 1% weighs in at nearly $8.4 million or 69 times the median household’s net holdings of $121,000 – a staggering multiple. (Census data from 2008 to 2010; NYT; Federal Reserve)

The confidence: feeling that they’re worth it

It’s clear they have the cash comfortably covered. What’s equally important – and maybe more remarkable – is the sense of self-worth that justifies luxury spending when so many other Americans are scraping by.

SCAN findings show that affluent consumers felt a blip of humility just after the economic implosion but have recouped their sense of having earned their place in the stratosphere by being smart, ethical, and even courageous.

While 56% of the affluent ($150K+) described themselves as “humble” in 2010, now only 46% do.

More and more, they see themselves as smart, ethical, courageous:
Adults $150K+    
Describes me perfectly/very well 2007 2011
Smart 73% 80%
Ethical 83% 91%
Courageous 49% 59%

Having not only survived but thrived through rocky economic times, the affluent feel they’ve earned their rewards. Both the economic and social constraints that initially held back luxury spending after the recession are gone thanks to the killer combo of cash and confidence… at least among the wealthy.

Business Implications: A renewed embrace of earned indulgence is taking hold among the top tier of consumers and giving them permission to spend on luxury again. It helps if a luxury brand’s quality and personality mirrors the C&C crowd’s own sense of self as unusually smart, ethical, courageous. Translation: worth it.

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