are not conspicuous or ostentatious consumers. They spend conservatively and save carefully. America’s current credit and economic
“Luxury is a very ambiguous word that is used very loosely”,
according to Ron Kurtz, President of The American Affluence Research Center (AARC), which has conducted a survey that provides a new view of the luxury market and how luxury consumers define luxury. In this survey, the affluent defined luxury by price point and brand for 37 products and services.
Affluent Report the Most They Could Imagine Spending for 37 Products
In AARC’s ground breaking research on the definition of luxury among the affluent, the respondents to the survey of the wealthiest 10% of US households were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.
The profile of the 552 affluent men and women in the national survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.2 million average value of their primary home. The average age is 55 while 86% are married and 60% are males.
Conspicuous Consumers Only 10% of Affluent Market; Most Affluent Not Familiar with Luxury Brands
“The research results support two important observations about the affluent market and their spending on luxury items”, according to Kurtz.
First, the affluent market is composed primarily of people with middle class backgrounds who continue to pursue a somewhat middle class lifestyle with middle class values. Kurtz emphasized that “about 90% of the affluent, or 10 million households, are not conspicuous or ostentatious consumers. They spend conservatively and save carefully. America’s current credit and economic problems might have been avoided if these affluent people, with their conservative spending and saving habits, had been recognized as role models. They have demonstrated the importance and value of living within your means.”
Second, only about 10% of the wealthy, or the 1 million households that account for less than 1% of US households, might be considered conspicuous consumers. With the exception of this relatively small niche segment, the affluent market does not appear to be very knowledgeable about the pricing and brands of products that are generally recognized by marketers as being in the higher price points associated with the luxury category. This seems to create an opportunity to substantially increase the market for high end luxury products if the affluent market can be educated about why they should consider buying them and the brands that offer them.
The popular perception of the luxury market and luxury consumers has resulted from anecdotal “research” “provided to the media by retail and luxury consultants that used examples such as a young Wall Street attorney spending $50,000 of a year end bonus for a new watch or a secretary spending $1,000 for a new hand bag”, according to Kurtz.
Kurtz observed that “other examples of conspicuous consumption among the wealthiest 1% of US households have created the impression that there were many hundreds of thousands of people making a million dollars a year or more among the ranks of the entertainers, professional athletes, Wall Street bankers and attorneys, Fortune 500 executives, real estate developers, and entrepreneurs who have taken their company public. In fact the latest Internal Revenue Service data shows less than 400,000 US households in this income bracket”,
The results of this survey, together with earlier research by Dr. Thomas Stanley, challenge the conventional wisdom that the US has witnessed increasingly conspicuous and ostentatious consumption by an increasingly affluent market for a period of about 30 years, which has been interrupted by brief interludes of retrenchment during the occasional recession and the 9-11 tragedy.
With only about 10% of the US affluent engaged in conspicuous consumption, together with the purchases of luxury goods by international visitors leveraging the weak value of the dollar, Kurtz believes “a distorted view of the size and nature of the true luxury market in the US has been created”.
The actual size and spending patterns of the affluent market are well documented by the data from the Internal Revenue Service and The Federal Reserve Board and the research of the affluent by former Georgia State University Professor Thomas J. Stanley that began in the 1970s and led to “The Millionaire Next Door” and a series of related books beginning in 1996. Dr. Stanley’s research produced similar conclusions regarding the lifestyle, values, spending, and savings profile of the affluent as that suggested by the AARC research. In fact, since AARC’s inception in 2002, the results of its research have been consistent with Dr. Stanley’s research.
For a more detailed summary of the findings of this research and its implications, visit our blog post at AffluenceResearch.org entitled "Popular View of Luxury Spending Debunked in Survey of the Wealthy."
