More affluence doesn't mean more for luxury retailers
When the financial meltdown hit the US consumer, it became clear that many previous predictions about the luxury market would be wrong, according to Richard Baker, founder of the US-based Premium Knowledge Group, who has provided new insights into the recession's implications for luxury retailers.
According to Baker, the growth of emerging economies and the resulting accumulation of personal wealth is closely tied to the health of the US economy. However, since the last quarter of 2008, several common assumptions have been called into question:
- That the number of affluent consumers would continue to increase at a faster than historic rate;
- That the generational transfer of wealth would amplify the potential for the luxury market;
- That the growth in the luxury market would be fastest in the emerging economies;
- That personal financial success always comes with material celebration. Current events have engendered a noticeable slowdown in the display of personal wealth, and those who can still afford luxury purchases are already known to be postponing many of them in order to avoid calling attention to their own good fortune.
As a result, the company suggests, luxury merchants can no longer count on the sheer increase in the number of affluent consumers to ensure the (at least in the near future) the viability of their brands and their companies. Neither can they count on existing affluent consumers to spend the way they did in the past.
Perhaps most importantly, the model for marketing luxury products and services to the wealthy will need to be aligned with changing consumer behaviours and needs, and more attention must be focused on the purpose of wealth, its benefits to society, and the related positive role of luxury as a medium or language rather than being an goal in its own right.
"Current conditions, and the probability that these conditions will last for some time yet, make the task of the luxury marketer far more difficult," concluded Baker. "More precision must be developed in differentiating the wealthy from each other, positioning products and services on a relevant basis, communicating in the language of the targeted consumer, and facilitating socially constructive relationships."