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MBPT Spotlight: How Brands Must Adapt as Luxury Goes Mainstream

Luxury retail consumers are no longer just an exclusive group of the super-rich in the U.S. and many brands and items once identified only exclusive to the excessively wealthy are being purchased today by an assortment of shoppers, according to a report by Nielsen. And many luxury brands are targeting new segments of consumers.

This has resulted in continued growth in the luxury goods category and estimates by consulting company Bain and Co. placing spending on personal luxury time in the U.S. at $73 billion last year, an increase of 5% over the previous year.

U.S. consumers are not only the biggest spenders on luxury merchandise in the world, but last year they spent more on luxury items than consumers in Japan, Italy, France and China combined.

Clearly, the sales opportunity for luxury goods brands is great, but as Nielsen points out, there is a need to understand who today’s luxury shoppers are. In its new report, The Luxury Retail Landscape, Nielsen identifies five distinct segments of consumers who associate different meaning and value around the term “luxury” and their purchasing behavior within the luxury market differs as well.

“Brands like Chanel, Ferrari and Rolex bring to mind images of Robin Leach and Lifestyles of the Rich and Famous, but luxury is no longer exclusive to the super-rich, as the luxury retail market moves into the U.S. mainstream,” the report says. “Luxury is often a way for consumers to signal that they’ve ‘made it,’ and there’s a myriad of ways for different segments to express that.”

Defining “luxury” today is also no easy task because the meaning of the word is in constant flux. For example, 20 years ago, mobile devices were viewed as luxury items and status symbols. As the report points out, “today, it would be difficult to find consumers who don’t consider their mobile device a necessity.” And as Apple introduces the Apple Watch, the report adds, “it is positioning itself within the luxury market to compete with the likes of Rolex and TAGHeuer.”

Luxury brands have made themselves and their products accessible to a broader portion of consumers, but as the report states, “striking a balance between appealing to a broader audience without alienating the core customer base is essential to success. Luxury brands must also be careful not to shift the premium and exclusive perception of their brands too dramatically.”

The report says blurring the distinction between luxury and mass appeal can be challenging and a risk for high-end brands. But it points to some examples where brands have successfully done it.

“Several have achieved notable success by creating partnerships with mass merchandisers, such as Vera Wang’s partnership with Kohl’s and Missoni’s partnership with Target,” the report says.

And striking that balance isn’t exclusive to the retail industry, the report adds, pointing to auto manufacturers like Toyota, Nissan and Honda which each offer higher end, luxury models through their Lexus, Infiniti and Acura brands, along with lower priced options through their flagship, namesake brands.

Higher end luxury retailers like Gilt Groupe and Haute Look (through Nordstrom) are making their brands accessible to a wider audience through e-commerce and via mobile apps. And the response from millennials has been strong.

The report says millennials ages 18-34 spend more than 50 hours a month using smartphones to search the web and use mobile apps.

The luxury consumer market today is made up of about 33% of U.S. households, the report says.

Within that group, there is the “established luxury” consumer segment. Those are the traditional affluent luxury buyers who value high quality, are older, live in affluent communities and don’t feel the need to show off by purchasing luxury goods. They shop at stores like Brooks Brother and Pottery Barn.

There’s also the “new luxury” consumer segment that is made up of young urbanites who value quality and craftsmanship, but also view luxury items as status symbols and image makers. Many of these consumers see luxury items as a way to make a statement about their success on social media.

These new luxury consumers are most likely to live in tech-hubs like San Jose and San Francisco, and they are likely to shop at upscale retailers like Bloomingdale’s, Crate & Barrel and Anthropologie.

There’s also the “Keeping Up with the Jones” segment that uses luxury items as a way to signal their success within their communities. This group doesn’t really value quality in luxury items. Rather, luxury goods serve as a way to impress others and gain stature. These consumers can be found in Los Angeles, Portland, Ore., and Salt Lake City. They are frequent shoppers at Banana Republic, Macy’s and The Gap.

There is another consumer segment called the “aspirationals.” They place a value on luxury items but have not traditionally made purchases. These are the consumers who take advantage of lower-priced offerings where luxury brand partnerships with mass retailers give them access to some brands.

Younger aspirationals tend to live in college towns and shop at retailers like Old Navy, Express and Burlington Coat Factory. Older aspirationals tend to live in Florida.

There’s also a non-luxury buying segment of consumers that makes up about 26% of the total population.

In a nutshell, here is a little profile of each of the five luxury buying consumer segments.

New Luxury Consumers
• Value image, status, quality, buy luxury
• Ages 25-44, wealthy urbanites
• Like to broadcast a lifestyle that impresses others
• Willing to pay more for high quality products
• Spent $500 in last year on athletic shoes, cosmetics/perfume, men’s and women’s clothing

Established Luxury Consumers
• Value quality, buy luxury
• Age 45 and over, wealthy suburban homeowners
• Willing to pay more for high quality product
• Prefer subtle status cues and timeless classic goods over trends
• Spent $500 in last year on fine jewelry, men’s and women’s business clothing, cosmetics/perfume, sports equipment

Keeping Up With The Jones
• Value image and status, buy luxury
• Under age 55, upscale suburban families
• Strive to achieve a high social status
• Like to live a lifestyle that impresses others
• Spent $500 in last year on athletic shoes, cosmetics/perfume, kids’ clothing, women’s shoes

Younger Aspirationals
• Value luxury, doesn’t buy luxury
• Under age 55, midscale suburban families
• Influenced by celebrity endorsements
• Would pay more for products consistent with the image they want
• Follow trends, wear designer brands to impress others
• Spent $500 in last year on athletic shoes, kids’ clothing

Older Aspirationals
• Value luxury, doesn’t buy luxury
• Age 55 plus, midscale rural couples
• Brand name is best indication of quality to them
• Price Conscious, economy has a direct impact on spending habits
• Spent less than $500 in last year on apparel, shoes and sports equipment

The report says developing a focused consumer engagement strategy for both core and aspirational luxury consumers is crucial for brands looking to tap into that market.

A successful consumer engagement strategy should include:
• Understanding the values, motivations and product preferences of consumers with affinity for luxury brands. Brands need to figure out which consumers lead and influence the luxury market and which consumers follow.
• Finding these consumers where they live and reaching them through the media they consume
• Activating consumers with messaging that will resonate and form an emotional connection and engagement to the luxury brands.