This is an article from JustLuxe Affluent Lifestyle Guide by Susan Kime (http://www.justluxe.com/luxe-insider/trends/feature-1583284.php). The article references our Spring 2011 survey.

May 16, 2011
By Susan Kime

Last year I wrote two articles about the Fall 2010 Survey research results and interpretation provided by the American Affluence Research Center, Ron Kurtz, President. The results of the Fall 2010 survey seemed to indicate some hope for the economic future, and for future affluent spending patterns.

Now, the results of the Spring 2011 American Affluence Research Center Survey appear even more hopeful. This report is based on the responses from 405 men and women who promptly responded and met the minimum net worth requirement of $800,000. Their households have an average annual income of $333,000, an average net worth of $3.1 million, average investable assets of $1.8 million, and an average primary residence value of $1.1 million.

The survey respondents represented 28 states and the District of Columbia. Eighty-eight percent are married. The average age is 57. Fifty-six percent are males and forty-four percent are females. This research survey is the 19th in a continuing series of twice-yearly surveys that focus on the 11.4 million households that represent the wealthiest 10 percent of all U.S. households, as determined by The Federal Reserve Board, based on net worth.

These households account for about half of all consumer spending and a third of gross domestic product.
These surveys measure and track how luxury and affluent consumers assess current business conditions and their 12-month outlook for the economy, the stock market and their personal household earnings. The surveys also monitor the anticipated changes in spending for a variety of different products and services, changes in expected rates of saving, and primary investment objectives. In addition, each survey contains special questions exploring new topics.

The survey results are based on self-administered questionnaires mailed to 4,500 households that, based on their income and ownership of certain assets, were expected to meet the minimum net worth requirement of $800,000. The maximum margin of error of this survey, at 95 percent confidence, is five percentage points. Index values shown in the report can range from 0 (negative) to 200 (positive), with an index of 100 being a neutral point and where little or no change is expected.

Here are the major findings:
In contrast to Fall 2010, the affluent, who account for about half of all consumer spending, report a better outlook for the economy and their personal spending plans. Spending plans for all 17 products and services tracked by these surveys are much stronger than in the Fall 2010 survey. There is also improvement in the plans to make major expenditures such as for a new auto, a cruise and a vacation home.

Discounts by prestigious brands during the past two or three years of a weak economy have apparently been accepted by affluent and luxury consumers without diluting the stature of the brands. About 60 percent of the affluent in the Spring 2011 survey say the discounts did not affect their opinion of the brands, while a quarter said the discounts motivated them to make purchases they may not have otherwise made. Only 5 percent said the discounts lowered the image/prestige of the brand.

This data suggests that the affluent recognize there are certain situations where discounting by luxury brands is reasonable and understandable, if not part of an ongoing practice. Less than 20 percent said the discounts raised potentially negative questions about whether quality had been lowered to offset the discounts and whether prior prices and profit margins were fair.

Similar responses were elicited when asked about their opinion of discounts that prestigious brands communicate via the Internet or mobile devices only to past customers or to “members” of special “flash sale” sites. While 65 percent of the affluent own a smart phone or a tablet (or both), the remainder have regular access to a computer. Half of the affluent say they do not participate in any type of social media.

Among those that do participate in social media, only a quarter say they use it to receive regular communication about product and related information from a manufacturer or retailer. In other words, only 12.5 percent of the affluent say they are using social media to receive regular product information from a manufacturer or retailer.

This relatively low number (12.5 percent of the affluent) may be surprising given all the amazing statistics being circulated by various research and traffic tracking companies about the volume and growth of e-commerce, the ubiquitous mobile devices, and the urgent emphasis to invest time and money into various forms of mobile apps and promotional activities online through proprietary sites and social media.

It is important to understand who will actually be reached through mobile devices and social media (and whether the ROI is reasonable), what technology is needed to be compatible with the various different mobile and other receiving devices, and who might be missed if communications are limited exclusively to these channels.

Based on a different business model and with 12 years in business, Zappos has established a much stronger position among affluent and luxury consumers than any of the 11 “flash sale” sites listed in the survey. Among the flash sale sites, Gilt and RueLaLa have established leading positions.

Over half of affluent and luxury consumers are aware of Zappos while none of the 11 listed “flash sale” sites have more than 10 percent awareness. A third of the affluent have visited Zappos in the past 90 days while 5 percent or less have visited any of the “flash sale” sites during that time. A third of the affluent and luxury consumers have ever made a purchase at Zappos while less than 4 percent have ever made a purchase at any of the individual flash sale sites.

These results are not totally surprising as the affluent are typically careful spenders whose favorite stores include Target, Costco and Home Depot. Also not surprising, the results vary substantially within age, gender and wealth categories. What may be surprising is the fact that over 40 percent of affluent and luxury consumers are not aware of Zappos or any of the flash sale sites.

About 10 percent of the affluent say they will seriously consider acquiring access to a vacation home during the next 12 months. Plans to make an acquisition increase as age declines, income increases, and net worth increases. About 2.9 percent are considering two types of vacation home acquisition. Wholly-owned homes are the most favored type of vacation home access. Wholly-owned homes used primarily on a seasonal basis are more popular than those used frequently throughout the year.

In a recent interview with Ron Kurtz, President of the American Affluence Research Group, he said, “The affluent market, as defined by the top 10 percent of U.S. households, still spend carefully. Their favorite stores are still CostCo, Target and Home Depot. They are not conspicuous or ostentatious spenders. The recession may not have fiscally affected them, but in some deeper sense, they have been affected. But, there is reason to be hopeful.”

Mr. Kurtz recently presented his findings at the GNEX Shared Ownership Conference on May 11, where he was a keynote speaker. “The spending attitudes of the affluent seem to be improving,” he said.

“What we see is a continued conservatism, but tinged with optimism now. Unlike in other years, and taken as a whole, our research shows the affluent majority are not taking action to reduce or defer major expenditures now. They are interested in purchasing vacation homes and are again interested in travel. Things are looking better.”

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This is an article from The Wall Street Journal by Christina Binkley (http://online.wsj.com/article/SB10001424052748703730804576317202215630540.html). The article references our Spring 2011 survey.

May 12, 2011
By Christina Binkley

Bentleys and Hermès bags are selling again. Yet the wealthiest Americans are emerging from the financial downturn as different consumers than they were.

Lyndie Benson says she now mentally calculates the “price per wear” of designer clothing. As the wife of saxophonist Kenny G, Ms. Benson, a photographer, can afford what she wants. She used to make a lot of impulse purchases, she says. But when shopping in Malibu, Calif., recently, she stopped herself before buying a gray Morgane Le Fay suit she’d tried on. “I walked outside and thought, ‘Hmmm, I don’t really love it that much,’” she says with contentment.

A number of surveys released in the past six weeks suggest Ms. Benson’s new selectiveness is widespread among the wealthiest Americans. Though many of these people might seem unscathed by the financial crisis—they didn’t lose their homes, jobs or retirement savings—they were deeply affected by what took place around them. “If you’re conscious at all, it just seeps in,” Ms. Benson says.

What’s showing up in the latest research is a broad-based caution—a sudden aversion to salespeople, a tepid response to ads focused on brand images, and a new interest in price-shopping. In Harrison Group’s first-quarter survey of consumers with a median income of $275,000, 38% said they wait for items to go on sale, versus 31% in 2010.

Indeed, obtaining discounts on luxury goods has become a competitive sport among many well-to-do consumers, including Jim Taylor, vice chairman of the Waterbury, Conn.-based Harrison Group. Though he is wealthier this year than last, he recently spent a week comparison-shopping for a suit. He ultimately bought his Michael Kors suit on Overstock.com for $185.

Laurence Geller, CEO of the luxury-resort-owning Strategic Hotels & Resorts, told me recently that his favorite place to shop is the Nordstrom Rack discount outlet in Chicago. Harrison Group researchers found Costco and Target were the favorite stores of the wealthiest Americans.

In fact, one time-honored tenet of the luxury industry—that discounted prices lower products’ prestige—appears to no longer be true, according to several studies. A survey released in April by the American Affluence Research Center, a luxury consultant based in Alpharetta, Ga., found that 60% of respondents said discounts didn’t affect their opinion of brands.

Items the rich do value at full price are one-of-a-kind clothes and accessories and experiences that create fond memories. Weekend getaways and vacations were the top two things the wealthy intended to spend more money on, Harrison Group says.

The new luxuries are things that are in limited supply and have an emotional quality, rather than just a high price tag. When I asked New York socialite Olivia Chantecaille about her luxury shopping, she cited a new Hermès Birkin bag—and a perfect mango she found in Paris. She and her husband have also been shopping a lot at Brunello Cucinelli, an Italian brand known for making J. Crew-style clothes such as cargo pants and comfy sweaters out of deluxe materials such as cashmere. Luxury may be back, but bling isn’t.

The affluent are less trusting of brands than a few years ago. That makes sense: When Saks and other stores slashed prices on luxury goods in winter 2008-2009, shoppers got an inkling of the outsized markups on $10,000 handbags.

Consumers are also less influenced by brands’ marketing. Harrison Group annually asks wealthy people if they agree with the statement: “I am willing to spend more for designer brands because they are the most stylish and fashionable.” In the first quarter of 2008, 51% of respondents agreed. Three years later, 32% agree.

Yet 82% say they are happy with the way they look. “They don’t need your brand to feel like they look good,” Mr. Taylor told a group of luxury executives last month.

Nor do they want salespeople hammering away at them. Only 2% said they trust salespeople—down from nearly 50% four years ago.

Part of this may be a reaction to the corporate push of commodity luxury. Ikram Goldman, the owner of the Ikram store in Chicago, says clients these days covet things that aren’t mass-produced. She cites Rodarte, which makes artful designs in tiny quantities, as a label that has benefited from new tastes. “They don’t feel like they’re a dime a dozen,” she says. “Our customers are desperate for that.”

Christophe Georges, chief operating officer of Bentley Motors Inc., says his clients are increasingly distrustful of corporate marketing. He types his own emails to them, rather than using automated customer-outreach programs. “We are a little amateurish,” he says, “and that’s a good thing.”

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About 58% of the affluent indicated they are aware of at least one of the 12 sites listed in a new Spring 2011 survey of the wealthiest 10% of US households by the American Affluence Research Center. Those aware of any of the sites are aware of an average of 2.7 sites.

In the new Spring 2011 survey, the 19th in a continuing series of twice-yearly tracking studies by the American Affluence Research Center, awareness of at least one site increases as age declines and income increases. Women are more aware of at least one site, while the differences within the net worth group are minimal. Awareness of at least one site is much higher among those who own a smart phone and/or tablet than among those who only have access to a computer.

Zappos, which has a different business model and has been in business for about 12 years, is known by 54% of the respondents. It was included in the list to provide a point of comparison with the various “flash sale” sites. About 10% are aware of Gilt, and all other sites listed have less than 10% awareness. Among those aware of at least one site, over 90% are aware of Zappos. Gilt ranks second in awareness among the different groups. The relative awareness of certain sites varies by age, gender, and levels of wealth. For example, Gilt has a 24% share among those under age 50 and only a 12% share among those age 60+.

On average, about 40% of the affluent had visited at least one of the 12 listed sites at least once during the prior 90 days. There was a greater likelihood of having visited one of the sites as age declined, among women, and among those with $200K+ income. Women were more than twice as likely as men, and those under age 50 were more than twice as likely as those age 60+, to have visited one of the sites during the past 90 days.

Zappos was the site most likely to be visited, with a share ranging from 58% (among those with $6M+ net worth) to the high 80s among several segments. Gilt had the second strongest share overall, typically below 10% but as high as 25% of the $6M+ net worth group. As an average share, Zappos had 81% and Gilt had 13%.

The owners of mobile devices (smart phones and/or tablets) are more likely to have visited one of the “flash sale” sites during the past 90 days than those with access to only computers (36%). Those with both tablets and smart phones were most likely to have visited one of the sites (55%).

Zappos was highly favored over all the other sites among the owners of all the various devices. Its share was lowest among tablet owners (63%) and highest among those who have access only to a computer (87%). Gilt had the second highest share and was strongest among those with a tablet (about 22%).

About 39% of the affluent have ever made a purchase from one of the sites listed. On average, they have purchased from 1.2 sites. The incidence of at least one purchase increases as age declines and income increases. Women are more likely to have made a purchase by a margin of two to one over men.

About 87% of those who have made a purchase did so from Zappos. Gilt ranks second in purchase incidence among all groups, with the exception of those age 60+ and those in the lowest and highest net worth groupings. RueLaLa is a close third.
Participants in the American Affluence Research Center Spring 2011 survey have an average annual household income of $333,000, an average primary residence value of $1.2 million, an average net worth of $3.1 million, and average investable assets of $1.8 million.

A description of the survey methodology and other detailed highlights of the survey can be viewed at: http://affluenceresearch.org/most-recent-tracking-study/highlights-of-most-recent-survey/

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A record low level of spending by affluent consumers for both designer apparel and non-designer apparel is suggested by the most recent survey in a series of twice-yearly studies that began in Spring 2002.

Negative attitudes about the current economy and the economic outlook for the next 12 months are contributing to plans for reducing designer apparel expenditures by affluent consumers during the next year, according to the Spring 2009 Affluent Market Tracking Study #15 conducted by The American Affluence Research Center.

In the Spring 2009 survey of the wealthiest 10% of all U.S. households, spending for designer apparel during the next 12 months, in comparison to their spending for such items during the past 12 months, is to be reduced by 54% of the affluent consumers and to be increased by only 1% of the affluent consumers. The remainder (45%) expects to spend the same during the next year as in the past year.

There is little difference in the designer apparel spending plans of women and men. The older (age 50 plus) and higher net worth segments ($6 million plus) are less likely to be reducing their spending for designer apparel.

Spending plans for non-designer apparel during the next 12 months are to be reduced by 31% of the affluent consumers and to be increased by 2% of the affluent consumers. About two-thirds expect to spend the same. Women are slightly more inclined than men to reduce spending.

The survey respondents indicated a negative 12 month outlook for business conditions and personal household income. They also reported declines in their net worth, as a result of substantial declines in the value of their home and their investments/savings during the past two years. Together, these factors have contributed to a general attitude toward reducing or deferring expenditures in all areas.

The intentions to reduce spending for designer and non-designer apparel are consistent with the overall mood of the affluent market. Over 80% of the survey respondents reported that they had made a general effort to reduce or defer expenditures during the past 12 months, would make a conscious effort to do so during the next 12 months, or had both done so in the past and would continue to do so in the future.

The survey is representative of the population of the most affluent 11.2 million households in the U.S. that account for almost 40% of total personal income and two-thirds of the personal wealth of all Americans.

The 640 men and women included in the national survey have an average annual household income of $290,000, an average primary residence value of $1.2 million, an average net worth of $3.1 million, and average investable assets of $1.4 million. This survey of affluent consumers has a maximum margin of error of five percentage points at the 95% confidence level.

These surveys track how affluent consumers assess current business conditions and their 12-month outlook for the economy, the stock market, personal household income, and their spending plans for different products and services that include major appliances, home computers, furniture/furnishings, home entertainment equipment, casual and upscale dining out, entertainment, recreation, domestic and international travel, designer and non-designer apparel, collectibles, fine jewelry, and political and charitable contributions.

* * *

Ron Kurtz is President of the American Affluence Research Center, which provides marketing research and mailing lists of affluent consumers to prominent companies targeting the affluent market.

AARC is an independent, private research organization dedicated to providing reliable marketing information about the values, lifestyles, attitudes, investments, and purchasing behavior of the most affluent segments of the U.S. population through both custom and multi-client surveys.

Ron’s experience includes over 20 years in senior management positions in the airline, hotel, and tour business. As the founding President of Sea Goddess Cruises, he created the product category of small deluxe ships for the very affluent. He also served as the chief marketing officer of four cruise lines, including Norwegian Cruise Line and Windstar Cruises.

Ron has been a key contributor to 6 start ups and 11 turnarounds of substantial businesses. He earned his MBA at Harvard Business School.

The American Affluence Research Center CONTACT: Ron Kurtz at 770-740-2200 or info@affluenceresearch.org. Website: http://www.affluenceresearch.org

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