Editor’s Note: This column was written by Leslie Hart in conjunction with Ellen Cheever, CMKBD, ASID.
As the economic environment improves, many eyes will be focused on luxury consumers. Will they return to pre-recession business as usual? Or is there a new mentality that marketers will need to address?
We believe, based on our research, there is a new reality that kitchen and bath firms will need to understand.
First, there will much more competition for this market, because it’s smaller than it was a year ago, by about 2.5 million households. The number of U.S. households with a net worth of $1 million or more, not including primary residence, fell 27% to 6.7 million in 2008, down from a record 9.2 million the year before, according to a report released in late summer by the Spectrem Group. That’s the lowest number of millionaires since 2003. Some analysts such as Merrill Lynch see a recovery in their numbers by 2013, but that is based on an optimistic projection of 8% return on investments.
Meanwhile, the number of ultra-high net worth households – those with a net worth of $5 million or more – dropped 28% to 840,000 in 2008, down from 1.16 million in ’07.
Affluent households, a broader group defined as those with $500,000 in net worth, declined 28% in 2008 to 11.3 million, down from 15.7 million in 2007.
So what’s happening with this smaller but still affluent group? Even though sales of luxury homes remain slow, there are indicators that the wealthy are spending on luxury goods again. The Dow Jones Luxury Index at the end of July was up 23% for the year-to-date.
‘True Luxury’ Returns
Interestingly, the decline in the number of wealthy is creating an opportunity for the return of true luxury. A survey from Prince and Associates, a wealth management firm, shows that true luxury – which it defines as goods that are rare, expertly made and sold to a select few – may be making a comeback. And the truly rich couldn’t be happier.
The survey, which polled 108 private jet owners with a mean net worth of $116 million, found that 94% now define luxury as “for oneself,” rather than “for the masses” (2.8%).
What’s more, 92% said they feel no guilt over luxury spending, since the money was hard earned. And 73% said a true luxury brand is a reward for being elite.
Russ Alan Prince, the firm’s president, said the fall of the so-called mass affluent or “trading up” crowd could return luxury to its roots – selling super-crafted, little-known status items to a select few.
“Luxury is becoming luxury again,” he said. “I say we’re entering a luxury Renaissance.”
This means your business paradigms and how you work with these customers will be changing.
First, it’s important to understand a key motivator for this group to spend money: They value a team that knows how to help them effortlessly build a self-contained, entertainment-filled fortress – for one house or many. They also do not like dealing with anyone unknown to them. And, these clients take their team with them from house to house.
Ultra-luxury consumers appreciate “Old World” graciousness, so you should consider creating a “gracious” new business model that makes it extremely simple and easy for the clients to get exactly what they want from you.
Either as a paradigm shift in your business or as incremental small changes, take any free time you have and methodically go through your entire organization and all subcontractors to create excellence and hassle-free delivery at every level. For example, you might have an electrician who in the past refused to give you pre-project estimates, simply billing when the work was done (bad for your profit protection). This craftsman might now be interested in changing the way he does business with you. Insist on the change you want to continue your relationship.
If you’re habitually late, now is the time to discipline yourself to arrive early everywhere, every time. How does everyone on your team look? Does everyone know the value of a pleasant demeanor and a smile?
The principals of each firm should change their business practices, allowing them to meet and greet each client their staff is serving. They should have a cohesive team delivering on the firm’s vision, not a loose confederation of individual entrepreneurs dealing with each client as they see fit.
We are going to be dealing with a younger clientele who have money, but no time. Mislabeled as trailing-edge Baby Boomers, they are a high-powered, family-oriented buying group, age 45 to 55. Recently called the realistically minded Generation Jones, they do not trust easily, expect a deal and think they can solve any dilemma by searching the Web or blogging.
However, once you have their attention by proving you know what you are doing with directness and professionalism, you become the “value added” for the sale. Don’t assume great service will sell the project. People expect it today. Beyond great service is the value of your knowledge. You are the brand, not the products you represent.
Here’s what trend watcher Faith Popcorn said about this change, “Now that everyone’s a Web-based know-it-all, we are secretly longing for the authority figures to guide and assure us with the indispensable nuggets of wisdom that can only come from having actually accumulated life experience.”
Because ultra high-end clients are afraid of “new people,” you need to get much smarter about staying in touch with your existing client base and searching out new targeted consumers. Stop waiting to see who comes through the showroom door. Start your own “rewards program.” A change in the luxury industry is that clients like to know we appreciate their business. First and foremost, take this time to create a proper database of past clients.
Increasingly, luxury clients have “their people.” In some cases these folks are gatekeepers, production/project managers or financial watch-dogs. Make them look good.
While making sure their “nest” is feathered to reflect their lifestyle, these clients also faithfully follow the selections recommended by their architect or interior designer. Whether we like it or not, it is in our best interest to develop a strong relationship with these allied design professionals.
When it comes to collaborative relationships, reinvent yourself into a business person in the design profession, rather than a design- focused artisan.