Welcome to the new nouveau riche.
As a result, the luxury sector is poised to become an even more significant player as it goes through an evolutionary step where the high-end segment is not limited to brands such as Louis Vuitton or Gucci. Nor will it be limited to consumers with household incomes above $200,000.
The next wave of luxury will be fueled by gourmet coffee and chocolate as well as diamonds and designer dresses, some of which are bought by consumers with minimum annual incomes of $75,000.
Over the past few years, perhaps since Sept. 11, the concept of what is luxury has expanded along with who qualifies as affluent. Today’s consumers of high-end goods don’t hesitate to spend premium dollars for what makes them feel good, whether it is an experience or something tangible.
Ken Wasik, an investment banker and director of the consumer products group at Houlihan Lokey Howard & Zukin, observed, “People like to spend, and they like to spend on themselves.”
To be sure, it used to be that luxury was an appellation reserved for the traditional high-end brand names such as Armani, Dior and Chanel. The profile of the luxury consumer did not include one who had to worry about retirement planning or living paycheck-to-paycheck.
But times have changed. Today, luxury is no longer the sole domain of high-quality, pricey brand names. The new nouveau riche are attracted to brands such as Godiva Chocolatiers as they are to Sub-Zero appliances and old-guard brands such as Tiffany & Co. as the concept of what is luxury expands to a wider spending audience.
The new luxury customer is likely to gobble up Godiva chocolates and wash it down with a venti coffee from Starbucks before shopping for a $2,000 brooch at Tiffany.
“We often associate quality with expensive, but [it] can be a sensual experience [such as a] massage, wonderful dinner, travel, a treat [or] something very special you do for yourself,” said Pam Danziger, president of Unity Marketing Online, in a research report based on focus groups.
Danziger calls the new generation of luxury “masstige,” for mass prestige.
Unity Marketing’s March 2004 Luxury Goods Consumption Index was slightly lower at 97.8 from January’s baseline of 100, showing a slight dip in consumption during the quarter. The 650 upper-income households surveyed had incomes over $75,000.
Danziger’s firm separates out the luxury market into three demographic categories: the super-affluents, with annual incomes of at least $150,000, or about 5.6 million households; affluents, at between $100,000 and $149,999, or 10.1 million homes, and the near-affluents, those from $75,000 to $99,999, or 12.2 million households.
She noted that jewelers such as Cartier and Bailey Banks & Biddle both target the luxury market. The difference is that a woman with $150,000 in income would likely shop at Cartier, while her near-affluent counterpart would head to the convenient mall locations of Bailey Banks & Biddle.
One myth that Unity Marketing’s studies debunked is the idea that luxury consumers are spendthrifts. Luxury consumers, in general, are not willing to put their lifestyle at risk, so they end up saving enough to ensure preservation of their standard of living.
One reason why the luxury market is expected to maintain a steady, bouncy pace is the growing number of affluent Baby Boomer households, a trend that will continue to drive luxury sales.
Danziger expects the market to continue its growth cycle until 2010, boosted by the 78 million Boomers between ages 40 and 58. Indeed, luxury goods sales in the U.S. are likely to continue for some time, according to a research report by J.P. Morgan analysts Melanie Flouquet and David Wedick.
The analysts concluded that the spending power of U.S. consumers in the upper-income brackets has benefited greatly from tax cuts. The group also has higher educational levels than those in the lower-income pools, which correspond to a lower rate of unemployment. Even against the specter of rising interest rates, the analysts noted that most upper-income consumers wouldn’t be too affected, since they’ve locked in their mortgages at low, fixed interest rates. In addition, they pointed out that the U.S., which represents close to 50 percent of diamond jewelry sales worldwide, is a geographic region that’s still underrepresented for some European firms.
Bear Stearns analyst Dana Telsey, in a May 10 report previewing retail earnings, wrote that luxury goods firms have “started to reflect the improving global economics outlook, which assumes enthusiastic news throughout [the first half of 2004] against an easy SARS- and Iraqi war-laden comparison with last year.”
She wrote that most brands are claiming “minute consumer resistance to inflation,” with Tiffany noting resilience for jewelry over the $50,000 price point and Coach “successfully raising prices by 7 to 10 percent in spite of its accessible positioning.”
Last week, Tiffany & Co. posted double-digit percent increases in income and sales for the first quarter, boosted by a 30 percent gain in sales at its New York flagship. For the three months ended April 30, the retailer said income rose 12.4 percent to $40.3 million from $35.9 million in the same year-ago quarter. Sales advanced 15.4 percent to $457 million from $395.8 million.
U.S. retail sales climbed 23 percent to $213.7 million, while comparable-store sales rose 20 percent. A 30 percent jump at Tiffany’s New York flagship on Fifth Avenue boosted the comp gain. International retail sales grew 12 percent to $184.7 million.