THE LUXURY CUSTOMER

MEET YOUR NEW Luxury CUSTOMER

Learn all about them—who they are, what they want, what they’re passionate about, and how they’ve changed for good

BY BARBARA THAU

The celebration and accumulation of bling, long linked to luxury merchandise and marketing, is losing its pull with the nation’s top-earning shoppers, reflecting a psychic shift following the steepest economic downturn since the Great Recession.

A perfect storm of factors has given rise to the redefinition of luxury across demographic groups: Even among many affluent shoppers, conspicuous consumption has assumed a new irrelevance—even vulgarity—in a post-recession mindset.

The nation’s ongoing economic woes and rising income inequality have thrust overt status pieces into a different light for many wealthy shoppers, experts say.

But just as some affluent shoppers experience logo fatigue and are drifting away from items that signal their wealth, like a logo-emblazoned designer bag, they—particularly the millennials—are moving toward products that express who they are, such as an Apple watch (shorthand for “hip and smart”). (See sidebar, page 60.)

At the same time, consumers are increasingly defining luxury via their experiences—from a lamb sous vide meal at the it restaurant to a Cuban vacation—as opposed to their actual possessions.

In turn, businesses targeting luxury consumers are adapting to the new normal and rethinking their marketing messages for shoppers who are looking for brands and products that express their idiosyncratic tastes and even social values, rather than cookie-cutter signifiers of affluence.

An “austerity” has settled in, says Pam Danziger, president of Unity Marketing, which follows the luxury market. “Spending across the board is down among affluent shoppers, who are cutting back and buying less.”

That downturn is reflected in the tepid performance of some iconic luxury brands. It’s a far cry from the nation’s pre-recession heady days, “when there was a huge boom in the luxury sector and the affluent felt very wealthy” amid rising housing values and stock market gains, Danziger says.

Pinpointing Luxury

Unity Marketing’s Personal Luxury Report surveyed 2,500 consumers aged 24 to 70, with an average income of $269,500, representing the top 20% of U.S. households.

The survey findings revealed a year-over-year decline in the group’s spending on most luxury products, such as apparel, jewelry, watches, wine and spirits, personal electronics, and automobiles.

TIP: A note to businesses seeking to court favor with today’s affluent consumer: Steer clear of the “L” word.

And although the nation’s top 10% of income earners, with a net worth of $800,000 and above, have returned to their pre-recession spending levels on big-ticket purchases like cars, cruises, and dining out, they won’t be buying as much designer apparel, fine jewelry, or watches, says Ron Kurtz, president of the American Affluence Research Center.

“People with money are getting older and have had plenty of time to accumulate tangible goods,” he says. Indeed, the average age of the top income earners surveyed recently by the American Affluence Research Center was 61, with a mere 7% under 50.

Luxury retailers and brands seeking a revival should target the HENRYs (High-Income-Earning, Not-Rich-Yet), who have an income ranging from $105,000 to $250,000, Danziger says. The group accounts for a whopping 90% of spending in the affluent market and comprises 24 million U.S. households, according to Unity Marketing.

Yet marketers continue to lavish attention on the Ultras, who earn $250,000 and above, says Danziger. “The HENRYs are like Rodney Dangerfield; they get no respect from luxury marketers,” she says. But by turning their backs on these “tempered pragmatists,” marketers are likely leaving money on the table.

A New Ethos: Personalization, Self-Expression

Luxury brands have traditionally marketed messages of heritage and craftsmanship to promote their cachet, a strategy that has largely lost its resonance with today’s affluent shoppers.

That’s because those stories are about the brand, not the consumer. Brands that place the consumer at the center of the narrative with products that allow for personal expression are in sync with today’s tony shoppers, experts say.

As a result, luxury shoppers today are calling for “customization to define who they are and who they want to be,” says Rod Sides, vice chairman, Deloitte LLP and leader of its Retail and Distribution Practice in the U.S.

Some brands are rising to the challenge. Burberry’s Art of the Trench micro site, with shopper-submitted images of consumers wearing the fashion company’s iconic trench coats, has been a hit for the fashion house. Now, “Burberry is expanding its customization from the trench coat to the scarf bar, with 32 different colors of cashmere scarves that can be personalized in two font sizes and around 30 different colors of thread to have one’s initials embroidered,” says retail analyst Dana Telsey, CEO of Telsey Advisory Group, in a research note.

At the same time, status symbols that are telling indicators of who the wearer is, and that allow wearers to put their own twist on a look, are gaining appeal with affluent shoppers.

Think an IRONMAN-Triathlon watch versus a Rolex to signal athletic cred, and bangles from Alex & Ani, which bills itself as a company with a social conscience, Danziger says. In fact, all items from the jewelry wholesaler/retailer are made in the U.S. with sustainable materials, and shoppers can support charities of their choice via their purchases. A wrist dangling with Alex & Ani bracelets can tell a nuanced story about its owner.

Meanwhile, across the retail landscape, “interesting partnerships have crept up to [help businesses] stay relevant,” says Sides. Case in point: Upscale department store Nordstrom has been expanding its in-store boutiques with Topshop, Britain’s edgy fast-fashion chain.

As retailers and legacy status brands are getting hip to the evolving luxury shopper, they’re challenging their own “brand heritage and sacred cows,” says Henry Mason, managing director of TrendWatching, during a recent “Heritage Heresy” presentation in New York.

THE Millennial FACTOR

Although members of the millennial generation, born between 1982 and 2000, have yet to reach their full earning potential, they’re expected to displace baby boomers as the nation’s biggest consumer buying group by 2020, accounting for a hefty $1.4 trillion in spending, according to Accenture research.

The passing of the spending baton has notable implications for the luxury market­—but the jury is still out on just how notable. Millennials, for one, came of age during the Great Recession, and many are saddled with student debt. As a result, they have gotten “a particularly slow start on their careers,” says Ron Kurtz, president of the American Affluence Research Center.

Still, the buying power and purchasing inclinations of the luxury millennial shopper are starting to emerge:

Millennials account for about 10% of the HENRYs (High-Income-Earning, Not-Rich-Yet), whose income ranges from $100,000 to $250,000, according to Unity Marketing.



And if conspicuous consumption is becoming passé for luxury shoppers overall, millennials tend to reject the notion altogether, as it “implies elitism” to many of them, says Pam Danziger, president of Unity Marketing. “Personal fulfillment and achievement are more important than a lot of money.”



Unlike previous generations, millennials don’t allow fashion magazines to be the arbiters of style for them. Millennials look to their peers, bloggers, and Instagram stars for inspiration, such as WeWoreWhat and The Blonde Salad, “who will do a mix of high and low brands and aim to look unique rather than follow one specific designer,” says Anjee Solanki, national director of retail services USA for commercial real estate firm Colliers International. “Brands like Valentino RED, Chanel, The Row, and Prada are getting it right in marketing to these buyers, and in making their logos less prevalent.”



Nearly seven in 10 (68%) affluent shoppers born after 1980 ask another person for input on a luxury item before buying it, compared with 64% of Gen Xers and 58% of baby boomers, according to the Spectrem Group, which tracks luxury purchases.



And technology is a “big connector” between luxury brands and millennial shoppers, Solanki says. Brands that curate looks on sites like Pinterest and Instagram “and have the ability to connect socially and digitally with Gen Y,” are resonating with this group.

Focusing on The Experience

As experiences from travel to the maker movement (aka brewing craft beer and whipping up artisanal cheese) have become the new status symbols, retailers are rethinking their store environments and shopping emporiums to adjust to the new normal.

“The next iteration of luxury retail is a blend between local, unique restaurateurs; luxury retailers; and the next generation of specialty shops,” says Anjee Solanki, national director of retail services USA for commercial real estate firm Colliers International, citing The Shops at Wailea and the Marin Country Mart as examples.

Located just a short ferry ride from San Francisco, the Marin Country Mart houses upscale retailers such as Intermix, tony restaurants backed by culinary stars like Farmshop from chef Jeff Cerciello, the trendy (and pricey) Soul Cycle gym, and live jazz. “It goes back to experience,” Solanki explains.

Barbara Thau is a contributing writer at Forbes.com, where she writes about the intersection of retail and consumer trends.