Who pays the price of luxury?

It has been well documented that the global economy has endured difficult times in recent years. The past year has been particularly hard due to factors such as the war in Iraq and the outbreak of SARS. Such factors have led to difficult trading across many consumer sectors, but nowhere has this been more apparent than the luxury goods sector.

According to the Office for National Statistics, nearly half of the UK’s wealth is held by the top five per cent of the population, and it is these people who have lost the most in absolute and proportionate terms.

The biggest losers among this group have been City workers, who have had their bonuses slashed; entrepreneurial and paper millionaires of the internet boom, who have disappeared as fast as they surfaced; and those with inherited wealth whose fortunes have continued their decades-long decline.

Data from Ledbury Research, which specialises in market research focused on affluent consumers, reveals that the stock market showed signs of recovery last year, and it believes that the net wealth of the country has started to grow again. The company’s analysis expects the UK’s net wealth to have returned to levels last seen in 1999.

High-end and luxury brands have been particularly affected by the decline in the nation’s wealth. While the recent trend of occasional purchasing or trading up by the general population looks set to continue, it is vital that top-end brands learn who today’s new affluent consumers are.

This new group, with its ability to afford frequent high-ticket item purchases, represents the core target market for luxury brands and is key to the recovery of the sector. But luxury brand marketers will need to understand their needs, wants and lifestyles first.

There is limited information available about the individuals in the UK that are deemed as affluent. To understand this group, Ledbury Research surveyed 1,000 people with more than &£100,000 of investable assets (that is, all financial and non-financial assets excluding the value of their primary residence) about their spending habits, brand preferences, opinions about marketing and buying, their lifestyles and their attitudes. The same survey was also completed by 1,200 randomly selected UK consumers.

The data shows that the “average” affluent individual in the UK is male, in his late-40s/early-50s, in full-time employment, married, and living in London or the South-east. However, this profile actually only fits about one-third of all affluent individuals. In recent years the number of wealthy people living outside London and the South-east has grown significantly, with only 42 per cent of those surveyed saying that their main home is in this area.

A range of luxury brands have taken note of this trend and have opened branches around the UK. Harvey Nichols, for instance, has expanded into Edinburgh, Leeds, Manchester and Birmingham.

Marketing to today’s affluent individuals requires a detailed understanding of how they live their lives, how they think and how they spend their money. The UK’s wealthy do many of the things that the population as a whole enjoy, such as eating out and attending concerts.

However, affluent individuals tend to have more hobbies and interests as their additional wealth allows them to do so. They are four times more likely to spend their spare time skiing and sailing than non-affluent individuals, and are three times more likely to enjoy wine-tasting – one-third of all those questioned listed this as a hobby. They are also almost twice as likely to go to health spas and the gym. The high costs of many of these pastimes acts as a barrier to many of the non-affluent.

The past few years have seen an increased interest in luxuries associated with improving the quality of life and reducing stress. A large number of those surveyed visit health spas and Ledbury predicts that this trend will continue. The level of interest in – and the amount spent on – interior design and products for the home is also predicted to grow, as wealthier consumers focus on spending money to create their ideal living environments.

In line with the trend of moving towards convenience and stress reduction is the growth of internet shopping. More than 90 per cent of those questioned have bought a product or service online, with nearly half having bought a product or service online worth more than &£250. More than 80 per cent would also consider buying gifts and electrical goods online and more than half of those questioned would also like to buy clothes and wine over the internet. Luxury brands and their marketers ignore the internet as a sales and marketing channel at their peril.

There is a percentage of super-rich individuals who are unaffected by economic swings and they will always be capable of splashing out. The luxury consumer is also likely to continue spending during tumultuous times as it offers a certain level of comfort.

While luxury goods marketers can take some comfort in this, the path to long-term growth is to offer products that are relevant and desirable for the general population, and will be essential to them even during times of economic hardship.