Demographic Disruption & the Luxury Drought: How to ‘Make Rain’

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\"RRIn a recent talk at the Hackers on the Runway conference in Paris, marketer-extraordinaire Seth Godin, asked, “Is Digital the End of Luxury Brands?” Rather, the question should be rephrased, “Is the Digital Generation i.e. the Millennials, the End of Luxury Brands?” The real challenge is how to bridge the gap between the current luxury consumer demographic to the next.

This demographic shift will disrupt the traditional luxury market and require major changes in how luxury brands communicate, connect and sell to a new target customer with new ideas about luxury and what it means personally to him or her.

Demographic disruption is the biggest challenge that luxury brands will face over the next 10 years. And this disruption is happening now in the largest luxury market in the world: the United States. The impact of demographic disruption will be felt by luxury brands both near and far because very simply, the U.S. luxury market (64.9 billion in 2014) dwarfs that of any other market in the world. It is larger than the next four largest markets combined in billions – Japan (18.1), Italy (16.1), France (15.3) and China (15), according to statistics compiled by Bain/Altagamma.

Numbers Game

The growth years that the luxury market in the U.S. experienced during the 1990s and first part of the 21st century was due largely to the movement of the gigantic Baby Boom generation into the age range that defines the window of affluence.

What’s happening today is that luxury brands face a generational shift in the demographics of its U.S. target market, from maturing Baby Boomers (born 1946-1964) to Millennials (born 1980-2000). Both generations are about similar in size with Millennials in the lead, but not of equal spending power. Affluent Boomers have already made their money as well as established their luxury lifestyles. Their appetites for luxury have shifted primarily to experiences, not stuff. In their lifestages, they don’t have the same interest or need for accumulating luxury goods.

Millennials are still on the road to affluence and accumulating things to enhance their lifestyles. The leading edge of that cohort is only 36 years old, and has not yet reached his or her stride in terms of income or wealth. People typically reach their highest income levels between 35 and 54 years of age, the window of affluence. So it will take until about the middle of the next decade (2026-2029) for the Millennials to reach critical mass in the affluence window. At that point, we expect them to have enough spending power to drive the next luxury boom.

So that leaves the significantly smaller Generation X, about half the size of Boomers and Millennials, in the age range that marks the lifelong income peak and, thus, their highest potential as customers of luxury brands. But the simple fact is, the relatively few affluent GenXers can’t fill the gap left by affluent Boomers.

For the next decade, we anticipate a Luxury Drought caused by this change in consumer demographics. For luxury marketers, that means that the good times of easy growth are over and competition will get fierce as a much smaller target consumer market of affluent GenXers becomes their primary customer. This will fundamentally disrupt the growth momentum in the luxury industry.

Luxury Brands Need New Strategies

Luxury brands can bypass GenX and follow the population projections indicating powerful emerging opportunities tapping the potential of the 25-to-34 year olds, the Millennial cohort. While these consumers have less income and therefore less discretionary money to spend on luxury, they do have a powerful appetite to acquire more material possessions.

Another way to view Millennials is acknowledging that they are well educated consumers with the best prospects for achieving high levels of incomes as they mature and start their ascent up the income ladder. We label them HENRYs: the mass affluent, aged 24-34, High-Earners-Not-Rich-Yet with incomes $100k-$249.9k.

Luxury marketers can make rain in this Luxury Drought if they focus on young HENRYs. These young HENRYs don’t aspire to own luxury brands for traditional status or show, but seek lasting quality and ultimate performance that luxury brands promise. Today, good quality products are readily available at every price point. To trade up to true luxury brands, HENRYs need a powerful, compelling reason that speaks to their unique mindset and values.

How Tag Heuer is Making Rain

The demographic shift and the disruption it causes for luxury brands require new strategies to position brands for the next generation. Take LVMH and its new initiative to reposition the Tag Heuer watch brand for the young HENRYs. In the boom- boom pre-recession years, Tag Heuer got greedy and moved up market, abandoning its more affordable $2,000-$5,000 price point to push into the $5,000-$10,000 price range. It worked for a time, but then it hit the wall.

Today under new management more attuned to the realities of marketing luxury brands to the next generation, Tag Heuer has gone back to basics to its more affordable, yet still very luxury $2,000-$5,000 price range. The brand has kept its high-performance, high-tech positioning with a new “Don’t Crack Under Pressure” tag line featuring youth-skewing athletes and celebrity brand ambassadors, like Super-Bowl champ Tom Brady, super-model Cara Delevingne, and tennis star Maria Sharapova. Tag Heuer also recognizes that today’s women, as well as men, appreciate the high-performance promise that is a foundation of the brand.

In looking to the brand’s future, it has just introduced the Connected smartwatch, priced at a very competitive $1,500, designed and built with Intel and Google, using its Android Wear operating system. Yet at the same time, Tag Heuer hasn’t abandoned its legendary past and continues to offer its classic Steve McQueen line, in honor of a man who lived an extraordinary life and ‘never cracked under pressure.’ He is also a role model for stylish Millennials.

Demographics is Destiny

How do other luxury brands make rain? Marketers will be challenged to convince less-affluent consumers that splurging on high-end products and services is a good idea. To succeed, brands must understand that luxury doesn’t mean the same thing to the next generation as it did to their parents or grandparents. Brands must adapt to the Millennials\’ unique perspective on luxury, which is a mindset, not a brand or price point. The key challenge for luxury brands and the young HENRYs is not about how they connect – Internet marketing tactics are a given – but rather on how to create new and compelling reasons why their brands are meaningful and important to this digitally-empowered generation. Here’s a playbook for luxury marketers to best position themselves for success:

  • Have their fingers on the pulse of the young HENRYs on the road to affluence, with a clear understanding of their values, attitudes and lifestyles.
  • Position products as solutions and meaningful long-term investments with transparent product information and honest value propositions.
  • Create an authentic experience for customers; appeal to local and regional cultural cues.
  • Incorporate leading edge Internet strategies to reach the young affluent consumer market.
  • Tap social media to build buzz about brands.
  • Have global reach.
  • Be prepared to offer customers a wider range of price points, including lower-priced selections, plus no- questions-asked return policy and free delivery.

And most especially, offer products or services that transform customers’ lives.



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