High Design: Luxury market forced to rethink discretionary spending
Discretionary purchases have taken on new meaning this year, leading many consumers, high-end brands and retailers to reconsider the state of the luxury goods market. Home Accents Today spoke with luxury market expert Pam Danziger, founder of market research firm Unity Marketing, about how luxury brands have had to reevaluate their priorities during the pandemic, and what home furnishings companies need to do to stay ahead of the curve.
From your perspective, what sets a brand or a product as apart as luxury?
Luxury is not a term that I like to use. It is grossly overused so its punch in lost. Even worse, it means everything and nothing because luxury, like beauty, is in the eye of the beholder.
From an industry perspective, luxury is usually used to signify the top of a brand’s line; its priciest offering. Strategically, brands use that top-tier price point as a decoy that provides a comparison for the shopper to attract them more to the products in the mid-range of their line. Some brands claim to sell only luxury-quality goods, but even if you study them you also find the same decoy cognitive manipulation going on. Tiffany sells lower-priced sterling silver jewelry, Chanel sells lower-priced lipstick and Hermes sells lower-priced scarves.
So when it comes to defining luxury in the home space, it really comes down to what your customers think is luxurious and working toward that.
How would you characterize the luxury marketplace of today? How has it changed since the onset of the pandemic?
At its core, luxury is the most discretionary of discretionary purchases: things people buy from want, not need. During the pandemic, the government defined what was discretionary for all of us: retailers selling nonessential products. The result was an immediate shutdown to all nonessential retailers, luxury top of that list.
But luxury brands have had to deal with a double-whammy caused by the pandemic. Consumers spending time at home, not doing all the things they normally do, got a rare chance for a reset. They were forced to reevaluate their priorities in light of the potential health threat they, their loved ones and friends faced. Luxury came up on the short end of that stick. And my suspicion is that luxury will continue to be less of a priority when the pandemic subsides and people can get back to their normal lives.
With the pandemic still as the backdrop, discretionary spending seems to be diverted from trips and other experiences, particularly in the short term. How can luxury home furnishings brands take advantage of this?
There is no question that the pandemic resulted in people saving money on trips, vacations and dining experiences. And based upon wide-spread reporting, a lot of that money got shuffled toward home purchases. That is all good news for all brands in the home space.
However, the Center for Housing Studies at Harvard University reports that this year’s uptick in home spending is not going to last. “Annual expenditures by owners for home improvements and repairs are expected to shrink slightly to $326 billion by the middle of 2021,” says Abbe Will, associate project director in the Remodeling Futures Program. “Given the ongoing uncertainty surrounding the broader impact of the pandemic, the timing on when we’ll reach a bottom in the remodeling market also remains unclear.”
So I worry that an “All boats rise with the tide” complacency might set in, leading home brands and retailers to sit back and wait for people to come to their door. That would be the worst thing to do. Now is the time to lean into more active marketing and branding. And the fact that brands can count on their competitors to not be so wise, they will have less noise in the marketplace to compete against.
How do you see the luxury marketplace evolving over the next five years?
It is very honestly too soon to tell. Brands need to stay fixed on the psychology of their consumers and monitor their underlying beliefs and feelings because that is where their success or failure in the luxury market is made. All luxury purchases are at their core emotional purchases.
How valuable is it for luxury brands to get in front of HENRYs?
I have been preaching the importance of HENRYs (high-earners-not-rich-yet) for luxury brands for years. They are their current and future customers. The fact is luxury brands depend on high-income and wealthy consumers, who are thin on the ground. The moneyed ultra-affluent households ($250k) in the U.S. today number only 6.4 million out of the nation’s total 130 million households. HENRYs, only one rung lower on the income scale ($100k-$249.9k), way outnumber them, nearly 33 million.
And the fact is most people who reach ultra-affluent levels of income start out and go through a number of years where they are HENRYs. People don’t generally get out of college or graduate school earning over $250k. And while not all HENRYs reach ultra-affluent income levels, most ultra-affluents go through a HENRY lifestage. That is where luxury brands can make a connection that will carry them into the future.
What are some examples of home brands or retailers that are doing a good job of creating an aspirational message and sticking to it? Why does that resonate?
RH is the brand that stands out as being more effective reaching HENRYs. Its RH Galleries are breathtaking and in the cities where they are located, their restaurants and bars attract a young HENRY audience looking to hang out and meet with friends.
RH Galleries create an experience that drives interest, buzz and excitement for HENRYs and that validates the home products RH offers. The hope is that when these young HENRYs, who are in the prime age range for buying home furnishings, are ready to decorate their homes, they will come back to RH. It is a good bet.