And in the first quarter of 2024, the global personal luxury goods market turned south, dropping between 1% and 3%, according to the study. Bain & Company Latest Report.
Bain notes that while the company continues to retain its top-tier luxury customers, it has steadily shifted spending away from luxury goods and toward luxury experiences. “Personal luxury brands are in a moment of crisis due to macroeconomic pressures and declining consumer demand.”
Further signs of trouble are emerging from HSBC Global Research. The company just cut its growth forecast for the luxury goods market by nearly half, citing “negative industry news received over the summer.” HSBC also said 2024 could be the worst year for the luxury goods industry in 20 years, with the absolute worst being 2020, which fell nearly 20%, and 2009, which fell 8%. I warned you.
Overall, high net worth (HNW) and ultra high net worth (UHNW) consumers account for approximately 40% of total luxury spending. However, that share can be significantly higher for certain luxury categories and for certain luxury brands.
Because the United States has the world’s largest population of affluent and ultra-high-net-worth individuals, the Affluent Consumer Research Corporation’s (ACRC) Luxury Goods Tracking Study has shown luxury goods leaders that their primary target is the United States. provides monthly updates on how customers view their current financial situation and trends in how they spend their money. money.
The September 2024 survey results show that high-net-worth consumers (median household income of $307,000, net worth excluding head household of $2.3 million) are navigating an economic climate defined by uncertainty. It became clear. They practice financial prudence by carefully evaluating their spending on luxury items and experiences.
Luxury brands in the luxury and experiential sectors are facing high-net-worth/ultra-high-net-worth American consumers who are striving to find a balance between luxury and restraint. While we remain focused on high-quality experiences and products, an uncertain macroeconomic and geopolitical environment requires discipline and moderation in spending.
And, confirming HSBC’s alarm, the situation on the ground has worsened in recent months. HSBC called this summer a “brutal summer” for the luxury goods market, and ACRC’s latest research reveals just how cruel it has been.
Financial situation is good, but caution is required
Overall, wealthy Americans are cautious about macroeconomic conditions, but they express strong confidence in their ability to manage their money. Nearly 40% believe the country’s fiscal stability is worse than it was three months ago, and about half (21%) think the country’s finances are in better shape. Additionally, 48% believe a recession is occurring now (23%) or will arrive within the next six months.
The prospect of increased taxes on personal income and new taxes on wealth weighs heavily on personal financial prospects, and at a macro level, we are deeply concerned about the rise in global conflict, political instability, and cybersecurity threats. For example, in the current contentious election cycle, about 51% are concerned that political turmoil could lead to an escalation of protests and civil unrest.
Looking to the future, affluent consumers will increase physical activity, make better food choices (49%), strengthen personal relationships with family and friends (47%), engage in self-care, hobbies, and learning experiences. I plan to focus on spending a lot of time on it. and other activities that lead to personal growth, greater happiness, and fulfillment (45%).
The overall mood among the n=261 wealthy people surveyed in September was one of financial prudence, prioritizing savings and investments over extravagant spending.
withdraw from extravagant spending
Over the summer, a significant number of wealthy people stayed away from the luxury goods market. Back in June, just 9% of the nearly 400 high-net-worth individuals surveyed said they had not purchased a luxury product, service or experience in the past 12 months.
The proportion of luxury no-shows almost doubled in September, with 17% saying they had not made a luxury purchase in the past 12 months and a similar proportion saying they had not made a luxury purchase in the next 12 months. I answered that I expected not to do so. Notably, respondents in both the June and September surveys had similar income and asset profiles.
Also notable in the September survey is that a significantly higher percentage of luxury goods consumers plan to spend less on luxury goods next year (28%) than plan to spend more (16%). That’s what happened. Twice as many planned to spend “more” at 10% and 5%, respectively.
Of course, there’s often a difference between what people say they’re doing and what they actually do, but the results of the latest ACRC study are a warning that things in the luxury goods market could get worse before they get better. The signal is flashing.
Transition to conscientious consumption
In the current economic climate, wealthy consumers are taking a more prudent approach to luxury spending. While an aspiring middle class once drove the growth of luxury brands, today’s wealthy and ultra-high-net-worth individuals are becoming increasingly conscientious about how they spend their money.
Historically, luxury brands like LVMH have built their business models around creating public desire by positioning their products as rare, exclusive, and expertly crafted. Ta. These attributes were often aimed at an ambitious middle class looking to own a piece of a luxurious lifestyle.
However, in today’s environment, affluent consumers have evolved beyond materialism and are becoming much more discerning in the products they purchase. They are shifting their focus away from luxury goods as status symbols and instead considering how their purchases impact the wider world. For example, sustainability and ethical consumption have emerged as key factors influencing purchasing decisions.
As a September 2024 study highlights, wealthy Americans are now paying more attention to the environmental and social impact of their spending. This shift in focus from self-serving luxury to conscientious consumption poses a major challenge for luxury brands who must adapt to retain these high-value customers.
selective luxury
This evolving mindset is also evident in the categories you plan to purchase. Topping the list of categories that luxury consumers plan to indulge in over the next three months are gourmet cuisine (51%), luxury brand hotel/resort experiences (46%), and luxury brand beauty or skin care (37%) It was.
Relatively low on the purchase intention scale are fine jewelry (22%), watches (16%), and private jet travel (8%), but seats in premium airline cabins (36%) and luxury brand cruises/ Yachting experience (21%) was rated highly. It now ranks higher on the purchase intent list than it did in June.
Other categories that will maintain some traction over the next three months include luxury branded apparel, fashion accessories, fine wine, craft spirits, and interior home improvement.
From mass-market aspirations to responsible luxury
Today’s wealthy consumers have gone beyond simply acquiring luxury goods for status. They seek purchases that resonate with their personal values and contribute to the greater good. For example, instead of splurging indiscriminately, many wealthy consumers are focusing on fewer, more thoughtful purchases that emphasize sustainability and long-term value over short-term gratification. Masu.
Luxury brands that once capitalized on a widespread desire for exclusivity must pivot to cater to a market where conscience and ethical consumption drive purchasing behavior. As the study notes, consumers are increasingly prioritizing savings and investments, while luxury spending is focused on products and experiences that align with personal goals and global responsibilities.
Dealing with growing headwinds
At the beginning of this year, those in the luxury goods industry predicted that 2024 would be a difficult year, and that’s exactly what happened. Of the 200 luxury industry executives surveyed for Unity Marketing’s State of Luxury report, more than a quarter (50%) believe the industry is entering a period of slowing growth. (27%) saw problems aplenty.
Luxury industry insiders are predicting participation from less affluent consumers, who are waning under pressure from inflation and economic tightening. As the year progressed, those fears became reality, but now even high-end consumers are holding back when it comes to luxury goods.
Luxury industry stakeholders also felt increased competitive pressures as more companies competed for the same or fewer customers and as brand loyalty declined among current customers. . That view has also proven prescient.
The future of the luxury goods market as we exit 2024 and enter 2025 is undeniably complex, characterized by an interplay of economic, political, and consumer-driven challenges. But within this complexity lies opportunity.
Shift in strategy
The luxury goods industry is at a crossroads. To remain relevant in a complex and competitive market, it is critical to adapt to the evolving demands of affluent consumers while continuing to prioritize consumer engagement and trust.
Luxury brands can no longer rely solely on traditional luxury brands such as craftsmanship and exclusivity. Instead, they must offer products and experiences that align with the broader concerns of today’s affluent consumers.
This evolution in consumer thinking is forcing luxury brands to rethink their value proposition. Exuding an aura of scarcity and exclusivity, which once worked, is no longer enough in a market where wealthy buyers are increasingly concerned about the sustainability of their purchases and the social impact of their wealth. Maybe not.
Brands that fail to address these new concerns risk losing relevance among a customer base that can afford to choose where their money is spent.
For luxury brands, the key to navigating these turbulent times will be not only to focus on quality and innovation, but also to embrace change in a way that resonates with the values of today’s affluent consumers. This includes strategic investments in sustainability initiatives, digital innovation and other consumer-driven areas.
The road ahead for luxury brands will be difficult, but those that adapt to these changing consumer values and behaviors will be well-positioned for long-term success.
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