TRACKING THE NEW AFFLUENTS
Byline: Dick Silverman
NEW YORK — Selling high-end apparel these days is literally a luxury.
The luxe market has captured the fascination of customers across America, and marketers and retailers of better-grade labels are relishing their new-found popularity.
Consumers are turning back to glamour and elegance with a vengeance and sales in the better-grade market are flourishing. Customers still demand value, but want quality and are more willing than ever to pay for it.
Affluents may have enjoyed their fling with the casual era, but they have shifted to classic suits, luxurious fabrics and hand-crafted quality. And they are raising their yearly expenditures for them.
According to the 1996 Mendelsohn Affluent Survey by Mendelsohn Media Research Inc., affluent U.S. households spent a whopping $40 billion on apparel during the prior year. Women’s apparel weighed in at $19 billion, men’s apparel at $16 billion and children’s wear at $5 billion.
The affluent market has blossomed to represent 22 percent of the total U.S. adult population, up from 20 percent in 1995.
“It is clear the affluent population is an extremely valuable marketing target,” the report bluntly states. Affluent consumers represent 42 million adults in almost 17,500,00 households.
The survey, which was sent to 35,000 U.S. adults and based on more than 10,000 responses, breaks affluents into three categories:
The least affluent, with household incomes of $70,000-$99,999, representing 57 percent of the total.
The middle tier, with household incomes of $100,000-$199,999, accounting for 35 percent.
The top level, with incomes of $200,00 or more, which makes up just 9 percent, but is the most attractive to marketers.
“The average dollars spent by the few, but wealthier, affluent adults are at least triple those of the lower affluent groups,” the study emphasized.
Spending Hits New Highs
Mendelsohn reported the higher-income segments outspend the lower, and stressed that in categories like apparel, “the differences are striking.”
For example, in the women’s apparel market, people in the $70,000-$99,999 income group spend $839 per person a year on. In the $100,000-$199,999 tier, yearly purchases averaged $1,361. But in the top segment, those with incomes of $200,000 and over, women’s yearly apparel purchases soared to an average of $3,041.
In the men’s apparel market, the $70,000-$99,999 income level averaged $754 on yearly purchases, the $100,000-$199,000 group spent $1,555 and the top segment earning $200,000 and over weighed in with an impressive $2,465 average for the year.
Consumers apparently are willing and able to pay for higher-priced merchandise. As the stock market continues to hit record highs and mutual funds follow, customers are opening their monthly financial statements and enjoying a pleasant surprise. At least on paper, they’re better off than they were the previous month.
And with their newly discovered wealth, they appear to be turning away from casual dressing and want to look rich again.
Ironically, the recent death of designer Gianni Versace seems to be adding new impetus to sales in the luxury label market. Attention on the designer world has heightened, and shoppers across the globe seem to be gobbling up higher-grade looks that also carry higher price tags.
Designer Joseph Abboud, whose upscale men’s and women’s collections appeal to a growing audience of well-off, educated consumers, noted, “Affluence doesn’t mean you have to be a millionaire.”
He said today’s high-end customer is much more aware of quality, construction and design integrity.
“There is an affluent consumer, but the difference between the Eighties and Nineties is that today’s consumer is much more intelligent and value-conscious,” Abboud said. “They’re more seasoned and won’t be duped by advertising. They’re turned on by product and will come and buy that product only if it services them well.”
He stressed affluent customers now respond not just to price, but to quality and value.
“Fashion has been too unintelligent for too long,” Abboud said. “Designers have not been giving consumers enough credit.”
The Influence Peddlers
According to studies, affluent shoppers are a prime target for retailers and marketers — not just because they have money, but because they influence other groups’ purchases and know, understand and appreciate quality.
According to Wealth in America, a study by Roper Starch Worldwide Inc., affluents are society’s opinion leaders and tend to set the trends.
“They exert a strong influence on the marketplace through their role as sources of advice, especially in the areas that reflect the affluent lifestyle,” reported the study, which surveyed 1,000 people across the country with household incomes of $100,000 or more, and another 100 people with incomes of at least $250,000.
Almost 30 percent of respondents admitted they give advice on what stores to shop in and 20 percent said they suggest what clothing others should purchase, subjects they are frequently asked about, the study revealed.
The affluents also travel frequently, often to prime retailing locations, and average 4.1 trips a year, spending a median $2,313 per visit — three times the amount spent by other Americans.
According to the Mendelsohn survey, the group primarily heads to destinations popular with high-end retailers. Their favorite six sights were Aspen, Nantucket, Palm Springs, Palm Beach, Vail and Maui.
The Wealth in America report noted, “The affluent consumer is a savvy, demanding, value-oriented consumer. Affluents’ attitudes toward consumption in general reflect a strong desire to buy the best-quality goods they can afford. They aren’t faddists and are willing to pay a premium for top-quality merchandise.
“Luxury, quality and exclusivity play roles in affluent consumption,” the study revealed. “Half of all affluents are used to having the best things in life…and don’t want to buy the same things everyone else has.”
Where They Shop
But while these shoppers know where to find the best value for their money, four-fifths of respondents admitted they’d shopped in discount stores or outlet centers during the past year. And more than half revealed they have shopped in wholesale clubs or discount outlets like Price Club or Sam’s.
The bottom line, they report, is value in quality and service.
Most respondents said they shop specialty department stores like Saks Fifth Avenue or Neiman Marcus (64 percent), more than half shop boutiques and one-third said they shop at designer signature stores. But because they are so pressed for time, 73 percent of the affluents revealed they buy from catalogs.
Eighty-eight percent strongly agreed that value was more important than price and 90 percent said it was worth spending extra money for a product that is “the best quality money can buy.”
Impressing others or keeping up with their neighbors is not important to them, the study revealed. They do not want to be perceived as flaunting their wealth and are not interested in always buying the newest products or gadgets.
They are brand loyal, but less likely to be among the first to try new things to see if they are better. And once they find a brand that satisfies them, they stick with it.
So how does a marketer reach this audience? Few admitted to being swayed by advertising, but almost half acknowledged ads with clear, intelligent messages influence their buying decisions.
“Pragmatic and savvy consumers that they are, affluents look for, and know where to find, the best value for their money,” Roper Starch stated.
Most consumers appear to be more comfortable buying brand names they know. According to Kurt Salmon Associates’ 1996 Consumer Pulse Survey, 80 percent said they would pay more for a brand name they like.
“For consumers demanding convenience and quality, brands play a critical role in assuring consistent satisfaction in fit, price, purchasing convenience and image,” the KSA survey states. “Fifty-six percent of consumers believe well-known brand name merchandise is of better quality than labels they don’t recognize, and 38 percent trust its styling/fashion more.”
KSA concurred that more affluents are shopping by catalog, noting catalogs are the most popular form of nonstore retailing; 72 percent of respondents said they had used the format. And it noted 89 percent reported being very/somewhat satisfied with their purchases, and half were very satisfied.
One potentially important new trend emerging for the affluent market is customization, according to KSA. For that portion of society, “there is a subtle backlash to being part of the mass,” KSA reported. ‘Customization is the ultimate in consumer intimacy and individualism. A significant number of consumers [36 percent] say they would be willing to pay more for custom-made merchandise. What’s more, they claim to be willing to wait as long as three weeks for the merchandise to be ready.”
And the affluent market appears most primed to purchase customized goods. KSA noted consumers whose annual incomes are more than $75,000 are more willing to pay for customized items than other consumer groups.
“Customization, especially if offered conveniently, will be a future trend to watch,” it projected. Increased production costs could be offset by the advantages of premium pricing, inventory reduction, higher volume and the benefits of consumer intimacy.”
Upscale consumers apparently also are turning to an alternative retail source: televised shopping. According to Fred Siegel, senior vice president of marketing for QVC, the shopping network attracts a wealthy audience and has one of the highest economic customer bases of any shopping channel.
“Our customers are primarily affluent people, in suburban metro or second-city society,” Siegel said. “They are watching and they are buying.”
He said the average viewer tends to prefer better-quality stores, noting, “Our research shows you are more likely to find a QVC customer shopping in Nordstrom’s or Bloomingdale’s than at Target or Kmart.”
The average home buyers have incomes of $50,000 to $75,000, he said.
“It’s clearly a higher socioeconomic group than at traditional retail,” Siegel said. “You’ve got to have money to buy a lot of what we sell.”
He noted better brands do extremely well on QVC, which plans to continue to add designer names and broaden its appeal to affluent viewers.
The Luxury of Higher Sales
According to Bear Stearns, earnings for luxury goods retailers this year should increase 44 percent on average, compared with 50 percent last year, while department stores’ earnings are estimated to rise 35 percent on average, after increasing 25 percent in 1996. The company noted luxury goods retailers’ stocks are trading at an average multiple of 18 times next year’s estimated earnings per share.
“Luxury goods retailers have been one of the few exciting retail categories in recent times,” Bear Stearns stated in a special report, noting higher-income households are benefiting from low inflation rates and the new vigor on Wall Street.
While households with incomes of less than $50,000 have rising debt burdens, debt payments for higher-income groups have been flat to down.
“Annual debt payments for the $30,000-$50,000 households have increased to 22 to 23 percent of after-tax dollars, while the $50,000-$100,000 group only allocates 16 to 17 percent of after-tax income for debt, and the over-$100,000 group earmarks an even smaller portion [less than 12 to 13 percent],” the Bear Stearns report states. “A lesser debt burden equates to a greater amount of disposable income, part of which we believe has poured into the luxury goods industry.”
The report projected sales at luxury goods firms such as Gucci, Neiman Marcus Group, Saks Holding Inc., St. John Knits, Tag Heuer and Tiffany & Co. should rise an average 25 percent in 1997, driving an average 50 percent increase in earnings.
Dick Silverman is editor of Fairchild’s Strategic Information Services (SIS), a global information newtork specializing in strategic information for the apparel industry.