My mother used to always tell me I succeeded “in spite of myself.” It was her way of telling me while my intentions and instincts and many of my actions may have been right, I was making whatever the task was more difficult than it had to be.
One could argue that the luxury industry’s continued robust performance is coming despite missing some large opportunities.
A recent report by wealth researcher Wealth-X found some 185,000 households worldwide with a Net Worth of at least $30 million. These families – commonly referred to as UHNW – or Ultra High Net Worth – cumulatively are worth between $25 Trillion and $40 Trillion depending on which report one reads.
They are without doubt the “heavy users” of luxury goods and services simply because they can afford to be. After all, who else is spending $5,000 a night on suites at luxury hotels and buying $50,000 watches or $80,000 necklaces. A 2011 Washington Post research project found that U.S. households in six major markets couldn’t make ends meet despite having a Household Income of $250,000, a level considered fairly robust by media buyers.
“ Ultra High Net Worth’s are without doubt the “heavy users” of luxury goods and services simply because they can afford to be ”
The kicker was that these families didn’t even have luxury cars, didn’t buy designer fashion and had an annual vacation budget of just $3,000. In New York this Mass Affluent family was running a deficit of nearly $30,000. In other words, there was very little upside marketing to these consumers. Hundreds of brands were competing for one or two luxury purchases per year, generally for no more than a couple thousand dollars.
Greg Furman, the Founder and CEO of The Luxury Marketing Council recently told me, “luxury companies need to be more focused on selling more watches to the person who already buys a half dozen watches a year than the first watch to a person who can’t pay his rent.” He added, that as luxury companies extend their product ranges they need to invest more in educating UHNW consumers, including advertising. He uses the term “share of wallet.”
As part of a white paper I am currently working on, we are trying to understand how much these UHNW households currently spend cumulatively across a variety of luxury product and service categories – and how deep their pocket books truly are. In other words, how much more could they spend if properly educated and motivated.
“ Hundreds of brands were competing for one or two luxury purchases per year, generally for no more than a couple thousand dollars ”
The categories we are looking at include automotive, jewelry, watches, fashion and accessories, hotels, resorts, spas, villas, adventure travel, yacht rentals (not purchases), renovating and refurnishing residences and collectibles.
Obviously there is a lot of guesswork with the formulas but using research we did with Prince & Associates that included personal interviews with over 600 private jet and fractional jet owners, the current figure comes out at around $300 billion annually. That would equate to about $1.6 million in spending for each of these 185,000 UHNW households. It would also register at only around one percent or less of Net Worth.
Interestingly, as we look at numerous other surveys of luxury lifestyle spending from Ipsos, American Affluence Research Center and Unity Marketing with Mass Affluent consumers to create a range of scenarios, we believe that the potential spending of these UHNW families could be over $2 trillion!
For the Global CEO of any major luxury brand or conglomerate, I feel pretty sure they all have well developed strategies for China and E-marketing. These are considered key areas all luxury companies need to be focused on. However, I am not sure if I would find any of these same, successful companies having a Global UHNW Marketing Officer responsible for a Global UHNW strategy with a single focus to get more spend from these UHNWs and centralized authority.
“ Luxury brands have well developed strategies for China & e-Marketing, but how many have a global UHNW strategy? ”
Yes, I know there are the polo sponsorships and at the country level lots of wining and dining and event invites for key customers. What I think has slipped through the cracks is these best prospects are now not in town or even in the country most of the time. I always like to say “private jets set the rich people free.” And in fact, one Richemont executive I met with referred to this group as “Homeless with 20 Homes.” Burberry has dubbed them the TLCs, short for Traveling Luxury Consumers. Global Nomads is another moniker.
Mykolas D. Rambus, CEO of Wealth-X, was right to the point: “The growing trend of the ultra wealthy choosing to establish residences in the most cosmopolitan cities around the world has implications for all professionals operating in the financial services and luxury sectors. Professionals need to understand these ultra wealthy clients, who defy being categorized by geographical location, should they wish to create consistent strategies of approach.”
Luxury houses today are still structured on a country basis with lots of country management and lots of local focus. It is not uncommon to be questioned, ‘what if your readers buy when they are in another country?’ I do understand everyone has their own revenue targets to hit. Being a global magazine, it means that some readers who are ‘based’ in the U.S. may in fact buy when they go to London or Hong Kong but at the same time readers from South America, the Middle East or Europe probably do a good deal of their buying in the U.S.
“ It’s easier to sell lots of stuff to rich people than poor people – Milton Pedraza, CEO, The Luxury Institute ”
It underscores the point that the luxury companies are enjoying success ‘despite themselves.’ Clearly, as Rambus notes, these UHNW families live a global lifestyle. A recent Financial Times piece profiled a couple who hop from London to Venice for lunch if it looks like a rainy day, and reported that today’s Super Rich follow the good weather, good schools, good tax regimes and good entertainment as they fly around on their private jets.
Milton Pedraza, the CEO of Luxury Institute once told me, “It’s easier to sell lots of stuff to rich people than poor people.” Even if the numbers I am looking at are wrong by double, luxury brands are leaving about $850 billion in sales in the pockets of UHNW customers who just need to be motivated to spend. Either way, it’s a bigger opportunity than China, bigger than the Internet, and right out there every day around the world at the nearest FBO. That’s the acronym for private jet terminal.
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