News
Can you spot the millionaire?
The 'new wealthy' are out there shopping. The first step to reaching them is knowing who they are.
October 1, 2008
This article originally published in Retail Customer Experience magazine, October 2008.Click hereto download a free PDF version.
The "new wealthy" are not a thing of the tech-boom past. Despite the present economic downturn, the number of affluent is staggering: According to the Federal Reserve, 10 percent of U.S. households (11.4 million) have a net worth of $800,000 or more. Nine million of those are millionaires. And the number is growing — affluent households are expected to account for 22 percent of all U.S. households by 2010."Affluence is increasing," said Todd Hale, senior vice president of consumer and shopper insights at Nielsen Homescan and Spectra. "The 'haves' have much stronger growth than the 'have-nots,' although there is a great deal of pressure on the middle. It's a great segment for retailers to reach out to right now because they are less impacted by the downturn."
Pam Danziger, president of Unity Marketing and author of "Shopping: Why we Love It and How Retailers Can Create the Ultimate Customer experience" agreed that the new wealthy aren't a consumer group to ignore. "Virtually 90 percent of affluent consumers in the country today rose from middle-class backgrounds, including lower middle class," she said.
Consumers who live a Lexus lifestyle but come from a Toyota childhood respond differently to the shopping experience than do "old money" consumers. To craft an experience that reaches both segments, retailers need to know who they are.
That's not as easy as it sounds.
"Poor people need low prices, but rich people love low prices." —Todd Hale, Nielsen Homescan and Spectra |
Confoundingly, many new affluent don't consider themselves wealthy. Ron Kurtz, president of the American Affluence Research Center, said that's because most of America's millionaires are self-made. "They tend to retain their middle-class attitudes and values, to the frustration of many makers of luxury goods."
An American Affluence Research Center study shows 61 percent of wealthy respondents consider themselves conservative spenders, 82 percent shop around for price and 98 percent would spend more for an item that will last long term (versus 4 percent who would spend more for something trendy).
Although bargain basements don't appeal to affluent consumers, bargains do, if the environment is clean and the selection is relatively upscale. "Poor people need low prices, but rich people love low prices" Hale said.
In fact, an American Affluence Research Center survey showed that when asked what the wealthy considered the "best chain store," Costco, Home Depot and Target all came in ahead of Nordstrom's.
The affluent are twice as likely as a low-income consumer to shop in a club store such as Costco or Sam's Club. Hale thinks that in addition to the bargains available in club stores, the simplicity of them attracts the affluent. "There are typically about 4,000 items in a club store versus 40,000 in a grocery store. The club stores do a good job of making sure that there is always something new, but the choice is not overwhelming. Some studies have shown that an over-assortment can be the cause of an unfulfilling shopping trip."
Newly affluent are diverse group
"As the number of affluent households grows and their wealth increases, the luxury market is becoming more diverse," said Danziger. About 13 percent of affluent households are headed by an ethnic minority. Some 5 percent of affluent households are led by a woman with no husband present. Thirty percent of affluent households are members of the GenX and Millennial generations and so bring more youthful tastes and attitudes to the marketplace as luxury consumers. It's dangerous to take a one-size-fits-all approach to these consumers."Baby boomers and older consumers spend more time shopping but buy fewer items. In spite of the perception that GenYers do most of their shopping online, members of this young demographic enjoy shopping as a collaborative social event often and will text or send photos to friends — or even post photos on their Facebook pages — for feedback on a particular purchase.
Don't overlook young consumers: Many have a greater personal spending power than their parents. In fact, according to Claritas, a Nielsen company that specializes in "geodemographic segmentation," in cities, young, educated affluents trump old money.
Danziger said GenXers are highly educated, savvy consumers and reach affluence at an earlier age than the generation before. They highly value the experience of luxury — "It's not the thing, but the experience," she said.
"The future for luxury marketers and luxury brands ultimately rests on how well they anticipate the passions and appetites of the newly emerging young affluent consumers," Danziger said. "They need to 'think young' in order to understand the young affluents and to position their brands for the future, both for the short and the long term."
And if GenXers are hard to predict, watch out for GenY — the upper edge of this 64-million-strong demographic is just leaving college, but they are larger than GenX and have greater earning potential than baby boomers. Like GenX, GenY grew up in a media-saturated environment; they are far more brand-conscious than their parents, but less brand-loyal. And they don't respond to traditional advertising.
"Younger affluents are opting to spend more on luxuries that give an immediate lift, while the more mature are making longer-term investment purchases. That finding suggests that luxury brands that want to capture the young affluent segment need to increase the urgency associated with a particular purchase, such as offering products in limited editions, limited-time introductory prices and special sale events, all focused on getting young affluents to act now and not to wait and contemplate," Danziger said.
"GenY certainly spends more money than previous generations," said Dr. Kit Yarrow, consumer psychologist at Golden Gate University. "This is partly because they tend to be optimistic and confident that money will continue to come in, and partly because their parents have indulged them more than earlier generations, so they are accustomed to a particular standard."
Yarrow said that GenYers are especially attracted to "lifestyle" retail brands, such as Pottery Barn, or retailers with a club-like atmosphere, such as Abercrombie & Fitch appealing.
Many consumers grow more affluent with age. Wealth — and spending — often builds as customers reach their thirties and forties, and starts to accumulate in their forties and fifties. Older consumers shop more, but in smaller quantities, probably because they are buying for smaller households. They are less likely than GenXers to splurge on daily small luxuries, but are more likely to splurge in rare but extravagant dream-of-a-lifetime-type purchases.
Lisa Anderson Mann is a freelancer and regular contributor to Retail Customer Experience magazine.
Related Media
Subscribe
Get the latest news and resources from Retail Customer Experience.
