In the U.S. retail market, the word luxury doesn’t have the same connotation that it once did. Or perhaps it’s just that the consumers who shop for luxury goods aren’t who they used to be. Either way you look at it, defining luxury today is no easy task—and neither is identifying how people view the term.
For many consumers, luxury is a way to signal that they’ve “made it,” but the ways they choose to showcase or express their status can be as varied as the consumers themselves. For example, some convey it subtly through the scarcity and heritage of the products they purchase. Others take a more forthright approach by purchasing eye-catching products they want to showcase for everyone to admire and covet.
Regardless of how consumers choose to bring luxury into their lives, the U.S. has the deepest pockets when it comes to luxury retail spending. In fact, management consulting firm Bain and Co. estimates that Americans spent $73.3 billion on luxury goods last year—more than consumers in Japan, Italy, France and China combined.
Despite the breadth of the U.S. luxury goods market, however, retailers have plenty of untapped potential to explore. In fact, a closer look at the luxury goods arena shows that the households that want to buy luxury goods outnumber those that already do by 8%.
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In order to engage with luxury-buying and aspirational buyers, retailers need key insight into the specific differences among these consumers. While no two consumers are exactly alike, Nielsen has identified five distinct perspectives around the meaning and value of the term “luxury,” and has categorized them into specific consumer segments. Three of them value luxury and make luxury retail purchases. The other two value and aspire to buy luxury items, but are less likely to actually make the purchases.
The aspirational consumer market is vital for luxury brands looking to achieve volume and growth. Both younger and older aspirational consumers place value on luxury products, but they haven’t traditionally been luxury consumers themselves. Lower-priced offerings and partnerships with mass merchandisers give these consumers access to the brand and build loyalty.
A luxury purchase should feel like an indulgence and a reward for aspirational consumers. Aspirationals under the age of 55 tend to live in college towns like College Station, Texas, and Lafayette, Ind., and they often shop at retailers like Burlington Coat Factory, Express and Old Navy. Aspirationals over 55 tend to shop at retailers Stein Mart and Chico’s, and live in Florida locales like Homosassa Springs, Punta Gorda and Sebring.
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In order to engage with luxury-buying and aspirational buyers, retailers need key insight into the specific differences among these consumers. While no two consumers are exactly alike, Nielsen has identified five distinct perspectives around the meaning and value of the term “luxury,” and has categorized them into specific consumer segments. Three of them value luxury and make luxury retail purchases. The other two value and aspire to buy luxury items, but are less likely to actually make the purchases.
The aspirational consumer market is vital for luxury brands looking to achieve volume and growth. Both younger and older aspirational consumers place value on luxury products, but they haven’t traditionally been luxury consumers themselves. Lower-priced offerings and partnerships with mass merchandisers give these consumers access to the brand and build loyalty.
A luxury purchase should feel like an indulgence and a reward for aspirational consumers. Aspirationals under the age of 55 tend to live in college towns like College Station, Texas, and Lafayette, Ind., and they often shop at retailers like Burlington Coat Factory, Express and Old Navy. Aspirationals over 55 tend to shop at retailers Stein Mart and Chico’s, and live in Florida locales like Homosassa Springs, Punta Gorda and Sebring.
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COMMENTARY: When it comes to luxury products, 73 percent of luxury consumers consider quality to be the most important attribute, according to a study by the Luxury Institute and Epsilon.
“The new face of luxury: Breaking down the myths and stereotypes of the luxury shopper” aims to better understand the luxury shopper. The research study was conducted by Epsilon in partnership with the Luxury Institute.
The report focuses on defining the different tiers of luxury consumers, focusing on those who are true luxe customers and those who are aspiring to that level. By understanding their consumers, luxury brands will be able to adjust their marketing tactics based on the individual’s level of consumption.
Milton Pedraza, CEO of the Luxury Institute, New York said.
“The only way you can have a good understanding of a human being is to have honest dialogue with them. You have to treat people as an individual and you have to have an honest and open dialogue with them,”
Deeper understanding
Interacting with consumers in a relevant and personal manner is key for brands looking to make a connection, especially since 50 percent of luxury brands lose their top clients every year. Also, since 47 percent of consumers say it is the customer service that defines a luxury brand, understanding and catering to the top customers is vital.
The study breaks down the luxury consumers into four categories:
- Aspirational shoppers are individual who want to own luxury items, but cannot afford to on a regular basis. They typically shop at outlet stores or on discount Web sites and purchase low-ticket designer brand items.
- Moments of wealth shoppers may save for a specific piece from a specific luxury brand, but they are not a regular consumer of the brand.
- Dressed for the part shoppers purchase luxury items to present themselves as someone living a luxurious lifestyle, but do not have the finances to be true luxe shoppers.
- True luxe shoppers do not have any financial concerns when purchasing and buy from luxury brands on a frequent basis.
Understanding where individuals lay in the scheme of luxury shopping and where they may jump to is important for brands. With a degree or a job change, consumers can move up a level of luxury shopping.
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True luxe shoppers are:
- Predominantly Male.
- Between the ages of 25 and 44.
- 52% are single.
- 42% are college graduates.
- Their net worth is more than $500,000.
- Annual incomes between $125,000 and $250,000.
Online shopping is less than 25 percent of sales for luxury brands, since consumers are still shopping in-person, leaving an opportunity for brands to offer more traditional white glove experiences.
However, this does not mean that luxe consumers are not actively online. Here are some stats that prove this point.
- 98% regularly use the Internet and more than 50 percent research products before purchasing.
- 75% compare prices on their mobile devices.
- 75% of these consumers are on social media, but less than 25 percent engage with brands on Facebook.
The digital nature of these consumers allows brands to have an online presence and attract consumers online, but offer customer service in-person.
The report suggests that brands organize and analyze housefile information to best understand their consumer’s habits and purchasing history.
Big data for personal results
Luxury brands are delving into more bespoke options and marketing, according to Wealth-X’s president at Luxury Retail Summit: Holiday Focus 2014.
Mr. Friedman spoke about the necessity among brands to understand their consumer, who they are, what they do and who their friends and family are in order to gain a full understanding of these individuals in order to effectively market. Luxury brands can learn from Wealth-X’s research on the ultra-high-net-worth individuals to create specific marketing strategy for the ultra-affluent (see story).
Some brands are adopting data trackers to attempt to understand in-store sales and trends.
For instance, Italian lingerie maker La Perla has teamed with a software platform to create a platform that will be implemented for all La Perla boutiques and fashion stores where its products are sold.
La Perla worked with MicroStrategy Mobile to analyze sales and other company data points through key performance indicators. This new technology will allow La Perla to be aware of information in all its stores and make necessary alterations to tactics without too much delay (see story).
Taking these opportunities to learn about and understand clients is vital for brands looking to engage and maintain a relationship with individuals.
Mr. Pedraza said.
“I think from the targeted marketing perspective if they understand who their clients are deeply they can really target those individuals and make it personal, People will be excited about the human approach. It gives you a wonderful opportunity to connect with [them] in a truly unique and personal way.”
The Wealthiest Consumers Hold Positions of Power, Prestige, and Influence
After tracking trends among the wealthy for over 35 years, we know how and where to uncover the ultra-affluent. It’s not only where they live that’s important; it’s their possessions, positions and proclivities that matter in determining an accurate definition of what it is to be a member of the top 1%.
Traditional sources for identifying affluence for marketing are insufficient
- Many wealthy individuals do not live in the most affluent census tracts
- Many affluent individuals do not have typical sources of income
- Many people of means are not found in public directories
The wealthy engage in activities indicative of their status
- Exclusive association memberships
- Luxury travel
- Golf & country club membership
- Major gift giving/philanthropy
- Gourmet food and wine appreciation
- Power spending
- Green awarenes
- Private equity investing
Courtesy of an article dated May 26, 2015 appearing in Nielsen Newswire, an article dated December 31, 2014 appearing in LuxuryDaily and an article appearing in ALC Wealth Window
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