Yes, wealthy consumers appear to be spending again, and luxury retail is showing improvement. But some analysts are predicting that one of the lasting effects of the Great Recession will be a generational shift in the luxury goods that will force retailers to change how they sell.
Baby boomers, who had been the backbone of the luxury market, have lost a lot of their net worth as their investments and property values tanked. That could lead retailers to start focus on the boomers' children, the echo-boomers of Generation Y, a sizable cohort of consumers who came of age at the turn of the millennium.
The boomers will continue to feel the effects of recession after the recovery, said Edmund Jay, senior VP of American Express Business Insights. Speaking to retailers at the recent WWD Apparel and Retail CEO Summit, he showed the merchants a graphic showing how most senior and boomer consumers cut back more deeply in their spending on luxury items during the recession than consumers from generation X or Y. And after the recession, seniors' and boomers' spending hasn't increased as sharply as it has among generation Y.
"Merely a Hiccup"
Those so-called millennials will account for the growth of luxury retail going forward, says Pam Danziger, president of consulting firm Unity Marketing. Even as generation X hits the peak earning ages of 35 to 54, the cohort is too small to support the market on its own.
"Gen X-ers are merely a hiccup. . .we have to wait for the millennials," says Danziger. Those 25- to 34-year-olds have the appetite for luxury, but not the cash -- at least not yet. "Affluence comes with middle age," she says.
In that context, it makes sense for Neiman Marcus to recently announce it will open a chain of outlets aimed at "aspirational" shoppers, carrying lower-price designer merchandise than it carries its mainline stores, notes Danziger, author of Putting the Luxe Back in Luxury.
Many millennials are what Danziger likes to call HENRYs -- an acronym coined by Forbes for high earners, not rich yet. But some of their characteristics have troubling implications for the luxury market.
The New Frugality Is Sticking
For example, Danziger notes that 25- to 34-year-olds aren't marrying at the same rate as their parents' generation, which means household income could stall. It's no coincidence that nearly 80% of affluent consumers -- in households with more than $100,000 in annual income -- are married. Household income rises about 60% when both spouses work, says Danziger.
Also, the millennials have different ideas of what luxury means, and they don't value status symbols like their parents did, says Danziger. A new frugality movement arose during the recession and is sticking, she claims. For example, she notes that in her research, she found the top fashion boutique brands among ultra-affluent shoppers -- with household incomes over $250,000 a year -- were Banana Republic, Ann Taylor and Ann Taylor Loft.
"There's a lot of competition bubbling up from the masses," says Danziger.
Shoppers will go through the good-better-best selection in department stores and may choose the better product over the top-of-the-line if the value is right for the price, says Danziger. That suggests merchants should hold down the prices in that "better" middle range and raise prices at the "best" level, where they're appealing to a narrower audience.
Danziger calls the new luxury shopper a "tempered pragmatist," who gets power from being a smart consumer and focuses on superior quality and performance. That means retailers will have to adjust their value message to give consumers a reason to pay the prices they ask, she says, adding: "We have to stop selling the sizzle and go back to selling the steak."