Contrary to assertions by some luxury market and retail consultants that the current economic problems are creating longer term changes in their lifestyles and reductions in spending on luxury and conspicuous consumption by America’s luxury consumers, Ron Kurtz, President of The American Affluence Research Center (AARC) believes that “most of the affluent are behaving like their normal, rational, and frugal selves. Their careful spending is not a new trend”.

While the concepts of “stealth wealth” and “luxury shame” are now being advanced by the retail and luxury consultants and futurists through anecdotal research about cut backs in the spending on ostentatious luxury, Kurtz feels “the sale of luxury goods and services, as defined by the majority of America’s affluent, is not subject to much change in 2009, just as it has not shown much change over the past 30 years”.

Kurtz bases his opinions on AARC’s ground breaking research on the definition of luxury among the affluent. The respondents to the AARC survey of the wealthiest 10% of US households were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.

The profile of the 552 affluent men and women in the national survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.2 million average value of their primary home. The average age is 55 while 86% are married and 60% are males.

Kurtz emphasized that he “doesn’t see any evidence that the majority of the affluent are showing major long term trend changes in their spending patterns and attitudes. They have never been ostentatious or conspicuous consumers. They have always been careful shoppers and savers who look for quality and value in their purchases, the brands they buy, and the stores where they shop”.

The affluent market in the US is cutting back and deferring expenditures, according to AARC research in  2008 and 2009, due to current economic conditions, especially given the reduced values of their homes and stock portfolios. However, these expenditure changes should not materially affect the sales of the high end products and brands normally associated with ostentatious “luxury” because most of the people in this market have not represented a substantial source of the sales of such products. “They will not suddenly be switching from Manolo Blahnik to Stuart Weitzman shoes, from Prada to Coach purses, or from Four Seasons hotels to Marriott,” according to Kurtz, “because they were not supporting those brands previously”.

The sales of the high end “luxury” products appear to be derived primarily from international “new rich” consumers and by the small segment of the wealthiest 1% in the US, as indicated by the AARC research.  A portion of the sales have apparently also been derived from those stretching their resources (especially their credit) to achieve a taste of luxury.

Kurtz believes “a segment of the small niche market of conspicuous American consumers will have to change their spending and saving behavior. The Wall Street investment bankers, attorneys, and others in related activities are experiencing large reductions in income and net worth. Many of the younger people in this group don’t have substantial net worth to fall back on, as they were spending what they were making and perhaps even more”. Kurtz observed that changes in the spending of these people, as well as among the wealthy “new rich” citizens of the BRIC (Brazil, Russia, India, and China) and other countries now experiencing recessions and declines in oil and commodity prices, will contribute to the decline in sales of the ostentatious “luxury” brands.

Concepts such as “discreet luxury”, in Kurtz’s view, are creations of some retail and luxury consultants who invent terms such as “mass affluent”, which he considers to be an oxymoron, to promote new consulting work. In his opinion, “some of these consultants are prone to invent such terms to describe changes in behavior among a small group of people as major trends. These trend projections are often based only on anecdotal or “managed” research”.

For a more detailed summary of the findings of this research and its implications, visit our blog post at AffluenceResearch.org entitled “Popular View of Luxury Spending Debunked in Survey of the Wealthy.”

Tags: Affluence Research, affluent market, conspicuous consumption, consumption habits, discreet luxury, high net worth, luxury, luxury consumers, luxury market, luxury research, luxury shame, millionares, stealth wealth
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“Luxury is a very ambiguous word that is used very loosely”, according to Ron Kurtz, President of The American Affluence Research Center (AARC), which has conducted a survey that provides a new view of the luxury market and how luxury consumers define luxury. In this survey, the affluent defined luxury by price point and brand for 37 products and services.

Affluent Report the Most They Could Imagine Spending for 37 Products

In AARC’s ground breaking research on the definition of luxury among the affluent, the respondents to the survey of the wealthiest 10% of US households were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.

The profile of the 552 affluent men and women in the national survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.2 million average value of their primary home. The average age is 55 while 86% are married and 60% are males.

Conspicuous Consumers Only 10% of Affluent Market; Most Affluent Not Familiar with Luxury Brands

“The research results support two important observations about the affluent market and their spending on luxury items”, according to Kurtz.

First, the affluent market is composed primarily of people with middle class backgrounds who continue to pursue a somewhat middle class lifestyle with middle class values. Kurtz emphasized that “about 90% of the affluent, or 10 million households, are not conspicuous or ostentatious consumers. They spend conservatively and save carefully. America’s current credit and economic problems might have been avoided if these affluent people, with their conservative spending and saving habits, had been recognized as role models. They have demonstrated the importance and value of living within your means.”

Second, only about 10% of the wealthy, or the 1 million households that account for less than 1% of US households, might be considered conspicuous consumers. With the exception of this relatively small niche segment, the affluent market does not appear to be very knowledgeable about the pricing and brands of products that are generally recognized by marketers as being in the higher price points associated with the luxury category. This seems to create an opportunity to substantially increase the market for high end luxury products if the affluent market can be educated about why they should consider buying them and the brands that offer them.

The popular perception of the luxury market and luxury consumers has resulted from anecdotal “research” “provided to the media by retail and luxury consultants that used examples such as a young Wall Street attorney spending $50,000 of a year end bonus for a new watch or a secretary spending $1,000 for a new hand bag”, according to  Kurtz.

Kurtz observed that “other examples of conspicuous consumption among the wealthiest 1% of US households have created the impression that there were many hundreds of thousands of people making a million dollars a year or more among the ranks of the entertainers, professional athletes, Wall Street bankers and attorneys, Fortune 500 executives, real estate developers, and entrepreneurs who have taken their company public. In fact the latest Internal Revenue Service data shows less than 400,000 US households in this income bracket”,

The results of this survey, together with earlier research by Dr. Thomas Stanley, challenge the conventional wisdom that the US has witnessed increasingly conspicuous and ostentatious consumption by an increasingly affluent market for a period of about 30 years, which has been interrupted by brief interludes of retrenchment during the occasional recession and the 9-11 tragedy.

With only about 10% of the US affluent engaged in conspicuous consumption, together with the purchases of luxury goods by international visitors leveraging the weak value of the dollar, Kurtz believes “a distorted view of the size and nature of the true luxury market in the US has been created”.

The actual size and spending patterns of the affluent market are well documented by the data from the Internal Revenue Service and The Federal Reserve Board and the research of the affluent by former Georgia State University Professor Thomas J. Stanley that began in the 1970s and led to “The Millionaire Next Door” and a series of related books beginning in 1996. Dr. Stanley’s research produced similar conclusions regarding the lifestyle, values, spending, and savings profile of the affluent as that suggested by the AARC research. In fact, since AARC’s inception in 2002, the results of its research have been consistent with Dr. Stanley’s research.

For a more detailed summary of the findings of this research and its implications, visit our blog post at AffluenceResearch.org entitled “Popular View of Luxury Spending Debunked in Survey of the Wealthy.”

Tags: Affluence Research, affluent market, conspicuous consumption, consumption habits, discreet luxury, high net worth, luxury, luxury consumers, luxury market, luxury research, luxury shame, millionares, stealth wealth
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For several years, luxury retail and marketing consultants have fed the media with anecdotal research about the luxury market as though the purchases of $700 Manolo Blahnik shoes, $1,000 Prada hand bags, and $250 True Religion jeans are common place among luxury consumers.

But the affluent women in a survey of the wealthiest 10% of US households by The American Affluence Research Center (AARC) report they are more likely to spend less than $120 for nice shoes, less than $100 for a purse for every day, and less than $75 for a pair of women’s jeans.

“Luxury is a very ambiguous word that is used very loosely”, according to Ron Kurtz, President of AARC, who observed that “the definition of luxury varies considerably by individual and by product, as clearly demonstrated by our survey. In this survey, the affluent defined luxury by price point and brand for 37 products and services”.

Affluent Report the Most They Could Imagine Spending for 37 Products

In AARC’s ground breaking research on the definition of luxury among the wealthy, the survey respondents were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.

The profile of the 552 affluent men and women in the national survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.2 million average value of their primary home. The average age is 55 while 86% are married and 60% are males.

Both men and women  were asked to provide a price (the median value of the price reported by men/women is shown in parenthesis)  and a brand for a new auto ($40,000/$35,000) for personal use, a room in the winter in a Caribbean resort ($300/$250 per night), a European cruise ($300/$300 per person per night), a hotel room in New York City ($300/$300 per night) for a vacation, a refrigerator ($1,500/$1,500), an original painting $3,000/$3,000), a washer/dryer set ($1,500/$1,500), a king size mattress ($1,000/$1,500), a set of linens for a king size bed ($200/$150), wall to wall carpet ($20/$20 per square foot), a watch for dressy occasions ($1,000/$500), a watch for every day ($130/$150), a bottle of wine ($40/$30) for a special dinner at home, frames for sun glasses ($125/$150), and a large 24” wheeled garment bag ($200/$150).

Women were asked to provide a price (median value shown in parenthesis) and a brand for a dressy suit ($250), shoes ($120) to go with the dressy suit, a cocktail dress ($200), shoes ($100) to go with the cocktail dress, a pair of jeans ($75), a pair of diamond stud earrings ($1,000), a purse ($100) for every day, skin rejuvenation cream ($50 for 1.7 ounces), liquid make-up/foundation ($25 for one ounce), a bottle of perfume ($60 for 1.7 ounces), and lipstick or gloss ($15).

Men were asked to provide a price (median value shown in parenthesis) and a brand for a business suit ($500), shoes ($200)  to go with the business suit, dress shirt ($75) to go with the business suit, a tie ($50) to go with the suit, a tuxedo ($500), shoes ($125) to go with the tuxedo, shirt ($75) to go with the tuxedo, a sport coat ($250), slacks ($100) to go with the sport coat, a dressy long sleeve sport shirt ($75), and dressy short sleeve sport shirt ($50).

For a more detailed summary of the findings of this research and its implications, visit our blog post at AffluenceResearch.org entitled “Popular View of Luxury Spending Debunked in Survey of the Wealthy.”

Tags: Affluence Research, affluent market, conspicuous consumption, consumption habits, discreet luxury, high net worth, luxury, luxury consumers, luxury market, luxury research, luxury shame, millionares, stealth wealth
Posted in Affluence Research, Luxury Defined, Luxury Market & Goods | No Comments »