Affluent Sick and Tired of Frugal Living

Discussion
Jan 19, 2010
George Anderson

By George Anderson

Luxury consumer brands and the retailers that
sell them were among the hardest hit during the economic downturn. But,
now that the economy is slowly picking up there are signs that affluent
consumers and those who aspire to shop like them are going back to a whole
host of upscale specialty and department stores — and not just their outlets.

Nordstrom,
Neiman Marcus, Saks and Tiffany are among those who posted sales gains that
exceeded most analysts’ expectations. Tiffany raised its outlook for
the quarter after seeing a 17 percent year-over-year jump. Luxury merchants,
like others in less affluent climbs, reduced inventory and focused on having
products that were high on consumers’ shopping lists.

"People are sick of
frugality and tired of holding back," Milton Pedraza, CEO, the Luxury Institute,
told Brandweek.
"People are starting to open their minds to luxury again. Last year, it was
a case of them not wanting to look like a conspicuous consumer. Now it’s
[a case of consumers] buying the best because the best lasts and has value."

New
research from the Luxury Institute found luxury product consumers are increasingly
going online in search of the bargains. Seventy-eight percent of luxury consumers
who shopped online did so to get the best deal while 77 percent did so to
compare brands or find a specific merchant’s site. These shoppers performed
an average of 14 daily searches, and 89 percent report having made a purchase
directly related to a search.

Discussion
Questions: Are consumers getting sick of being frugal? Do you think concerns
about the appearance of conspicuous consumption are driving more luxury product
consumers to shop online? What are the keys to luxury retailing success online
and in stores at the present time?

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26 Comments on "Affluent Sick and Tired of Frugal Living"


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David Livingston
Guest
11 years 3 months ago

Being frugal is becoming a new life style for the wealthy. It’s nice to have a new luxury car. It’s even nicer to brow beat the dealership into selling you the car below cost. The same with other products. Aldi recently opened a store in Brookfield, Wisconsin, an affluent suburb of Milwaukee. I see a lot of fur coats and diamonds walking around in there. There is no more free pass for luxury items. Retailers are going to have to become Wal-Marts for the wealthy.

Bob Phibbs
Guest
11 years 3 months ago

Until reporters and “experts” are sick of touting the “frugal consumer” and the “deal” shoppers, we’ll still hear scads of reports about how luxury is dead because it is the flavor-of-the-day. Got it there are real challenges to the economy but to bastardize Mark Twain, “reports of my death are greatly exaggerated.”

Doron Levy
Guest
Doron Levy
11 years 3 months ago

This goes back to what Doug Stephens was saying about the high fidelity experience in retail. Affluent shoppers will only stay frugal for so long. Burberry just reported stronger numbers than forecasted (which is encouraging for that sector) and suspect we will see more high-end retailers following suit with better than expected numbers (where else will bank bonuses be spent?). Margins are not usually an issue for high-end retailers so if volume is present, they are ‘golden’.

David Biernbaum
Guest
11 years 3 months ago

The perception of “frugal” means different things to different consumers. However, one mistake made by many retailers during the recession is that “frugal” doesn’t necessarily mean that consumers don’t want “nice things.” Fact is, they simply do not want to overpay for them.

Max Goldberg
Guest
11 years 3 months ago

It’s not about whether consumers are tired of being frugal. It’s about a search for quality and value. Before the recession, consumers seemed willing to throw money at products. Now they are doing more research to ascertain the best product for their needs and which retailer has the best price. I don’t think we will see a return of spending for spending’s sake any time soon.

Ralph Jacobson
Guest
11 years 3 months ago

The Western World, whether rich or middle class, has a short attention span to the economic crisis. While touring several stores during NRF last week in NYC, the crowd on the streets and in the stores on Fifth Ave, SoHo and other neighborhoods was like it was before the Holidays. The stores were jammed. Yes, there are a ton of international tourists, and no, it may not be this busy in retail in other cities, like Detroit. However, there certainly seemed like no sign of a recession in NYC.

Dick Seesel
Guest
11 years 3 months ago

Affluent shoppers who have seen their stock portfolios and bonuses recover somewhat in the past six months seem to be opening their wallets, based on the results of luxury retail during the fourth quarter. (Of course, the comp sales from 2008 were a disaster.) At the same time, those retailers have worked hard to provide some sale incentives to their affluent customers, in the form of enhanced loyalty programs, more value-oriented product development, and so on.

Gene Hoffman
Guest
Gene Hoffman
11 years 3 months ago

Consumers mostly hate being frugal; it casts them as “non winners.” No exciting “make-believe” dreams arise from being penny pinchers. But we have been conditioned to a new emotion suggesting that a there’s a new highway to be traveled called Prudence–and retailers and suppliers have helped pave that road in recent decades.

Frugality has surrounded consumers and it has stamped its brand on most consumers. A “Don’t-buy-unless-it’s-on-sale” mentality now prevails. The future can, of course, be brighter than it is today but extravagance will likely strike a lower cord with the majority of consumers–until some innovative retailer or supplier can make greater dreams fashionable again.

Gene Detroyer
Guest
11 years 3 months ago
Do not confuse frugality of affluent shoppers with the inability of high-end shoppers to purchase. High-end retail, more than any other segment, has been driven not by high-end living of those who could afford it, but by borrowing and buying of those who could not. A year ago I related the story of a private shopper at a very high-end store seeing her customers for the first time returning items and even experiencing credit card rejections. This is reality and not the social science excuses of people avoiding conspicuous consumption. And let’s also take great care to measure any success on year-over-year numbers against the economic shock of last year. The most telling comment in the article is the Luxury Institute’s findings of so many shoppers going online. This will be the great challenge for the luxury retailers. Perhaps more than any other segment, luxury retailers need the customer actually going into the store. Much of their success is in up-selling and cross-selling by their sales associates. Much of their success is also the aura… Read more »
Bill Emerson
Guest
Bill Emerson
11 years 3 months ago
I’m always puzzled by this conversation. No doubt many, if not most, consumers are “sick of being frugal.” Do they have a choice? Let’s review. The primary “luxury” customer is a member of the baby boomer generation. Their average age is in the mid to late fifties. They are beginning to approach retirement (assuming they can afford it) and are leaving their primary “acquisitive” years. The economy is in the worst recession since the depression with little reason to expect a recovery any time soon. Their primary assets (home and 401k) have taken a terrible beating and have recovered only slightly. The boomers are followed by Gen X, which is 11% smaller in size and lacks the consumption traits of the boomers. Gen Y is a third larger than the boomers and spends significantly more than than they did at their age. They also have an average age of 18-19, hardly a typical luxury customer. My sense is that “luxury” will continue to morph into “value and utility” over the next 5-8 years. This doesn’t… Read more »
Marc Gordon
Guest
Marc Gordon
11 years 3 months ago

This trend should not be surprising to anyone who has followed the aftermath of past recessions. After the dot com bust of 2001, being frugal became all the rage. But within a year or two, excess again became the norm. The same holds true for the recessions in the early eighties and the mid seventies. And of course who can forget the lifestyle change Americans adapted to after WWII.

Living in a society that promotes material ownership and people who judge themselves and others by what they own will lead us down the same path regardless of any bumps along the way.

Doug Stephens
Guest
Doug Stephens
11 years 3 months ago

No one aspires to live below their means. What we’ve been seeing is simply people attempting for the first time in a while to live within their means.

“Frugality” for most, is a coping behavior not a way of life.

What we can foresee is a protracted period where the consumer will be seeking value. Whether that value comes in the form of a $1,500 Louis handbag or $15 Walmart purse, the consumer will want to feel reassured that it was the right decision based on overall value.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 3 months ago

Frugal is not only popular, it is still a necessity for most. Until unemployment numbers improve, I think consumers are still going to be careful with their wallets. The upside is I do believe that when a shopper does make a luxury purchase they will be focused on quality, environmental impact (sustainability) and where the product was made.

Retailers that offer quality luxury items and keep a close watch on inventory will do well in 2010-11. High levels of inventory lead to huge end of season sales that will continue to condition consumers to wait for the sales rather than buy when they see something they like and need.

Warren Thayer
Guest
11 years 3 months ago

No paradigm shifts here, just the pendulum swinging, as it always does. With the economy improving, at least for bankers with bonuses, I’d naturally expect to see more high-end spending. Big question for me is whether Walmart will keep the more upscale shoppers it has gained since the recession began. I’ve been surveying folk on this, and the consensus thus far, by a slim margin, is “no.”

Steve Montgomery
Guest
11 years 3 months ago
The question (Are customers getting sick of being frugal?” covers far more than just the high-end shopper. I am pretty sure that everyone would like to have more discretionary income and the ability to spend more freely. However, the past couple years have taught everyone that you can find alternative ways to fulfill your desires. These range from doing without to trading down to negotiating the price. I don’t think these lessons will just disappear as the economy improves (or those that have the money and didn’t spend it decide its ok to do so). My parents went through the depression and their spending habits and those of many of their peers never changed. People who have learned that they can get the brands they want at a discount online are not going to going back to buying retail. Personal example–I learned this past holiday season that I could save about one-third by buying a certain brand of crystal figurines online. Why would I or anyone else go back to paying full price?
Ian Percy
Guest
11 years 3 months ago

Sometimes the “shudderings” of our lives (like an economic meltdown or coming face to face with the possibility of demise) cause us to sort out what is truly important. A wealthy woman in light of her shuddering may decide that the handbag she got at Target is pretty darn good. A normally frugal man may come to the new realization that life should be lived with an attitude of abundance, gratitude and joy.

I think that “marketing” is more of a spiritual exploration than it is an economic one. What if instead of profiling customers by their income or zip code, we explore what they believe in and what values they hold dear? It may be that discount stores can serve the wealthy very well just as luxury stores can serve the frugal. A quick example is buying a suit at JoS. A. Bank’s 70%-off sale and then having upscale shirts custom-made and being thrilled with both purchases.

Cathy Hotka
Guest
11 years 3 months ago

Wow. Look at the number of comments here.

Several years ago, the luxuries’ target customer was a woman with disposable income of $150,000 per year. While those people will continue to want the service and experience of luxury stores, one has to believe that they’ve discovered by now that they can purchase equivalent merchandise in discount stores like Loehmann’s for a fraction of the cost. I’ll bet that the restless, affluent customer will lift the fortunes of lots of kinds of retailers, not just those that target the wealthy.

Jonathan Marek
Guest
11 years 3 months ago

One of the folks above described it as the “pendulum swinging back.” I think that’s right. Right now, we are comping over fear and panic. The fear and panic has declined a lot, especially among luxury buyers whose fear came from declines in their portfolios rather than the loss of income. As for long term behavior, we’ll see what happens in 9-12 months, when we start comping over the period we’re in now.

Pamela Danziger
Guest
Pamela Danziger
11 years 3 months ago
This is wishful thinking on the luxury marketers’ part. While luxury brands reported uptick in sales 4Q2009, most also didn’t make up for the loss they experienced 4Q2008. Unity Marketing’s research still shows continued caution on the part of affluent shoppers in terms of spending. The biggest long-term change we are going to see in the luxury market as a result of the economic upheaval is a clear-cut split in the affluent market. The dividing line is HHI of $250,000 and above. People who live under the line, from $100,000 to $249,999, though still affluent and living better than 80% of U.S. households, are no longer trading up or living beyond their means. They are back to living an upper-middle-class lifestyle, which allows for only an occasional luxury splurge. Those with incomes over $250,000 will be the primary demographic on which luxury brands must build their long term future. But with only 2.4 million of those households, vs. 21 million at the $100,000-$249,999, they are going to have a hard time to maintain growth. This… Read more »
Doug Fleener
Guest
11 years 3 months ago

Last week I worked with the management team of an independent, upscale jewelry store chain. I can tell you this group is starting to see the light at the end of the tunnel, or more appropriate, seeing more of their affluent customers again. This group was very optimistic about the improvement in their business.

I believe the affluent customer wants a good value like everyone else, and that’s why they’re going online. I know the jeweler I worked with is investing in improving both their online presence as well as their in-store experience. They’re both pretty much going hand in hand today.

Li McClelland
Guest
Li McClelland
11 years 3 months ago

A commenter this morning stated that “nobody aspires to live below their means.” Well, I do. And I think many, many others do as well. This general type and their buying habits were well researched and presented in the book “The Millionaire Next Door.”

Another commenter who explained by the demographics why retailers must adapt and think differently, especially about their former luxury customers is spot on. For sure, quality top-end items will always be purchased for a variety of reasons–but very likely never again with the thoughtless gay abandon they were in the 2000s.

Craig Sundstrom
Guest
11 years 3 months ago

Hard to type with one’s fists clenched! Seriously, the opinions are all over the place on this one–both within the article itself and the comments afterward–which probably isn’t surprising given the vagueness of the terminology and the broadness of the question(s). Suffice it to say, there are always people with money, and as the economy improves, we will see them spend more. Will the newsweeklies run fluff pieces about it? Yes…but probably not just yet.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 3 months ago

Upscale consumers may be sick and tired of frugal living, but that doesn’t necessarily mean that they are going to be returning to old spending patterns soon. They have been as traumatized by the recession as anybody else, and many have been directly impacted by job losses, especially those in financial services. They are no more likely to return to their old ways before employment starts to pick up than anybody else.

John Crossman
Guest
John Crossman
11 years 3 months ago

For many it is still about the experience. What we need is more value, which can be a higher cost, but a greater return.

Mark Burr
Guest
11 years 3 months ago
It’s fairly certain that the gains in the not so recent past made by the retailers serving the so-called ‘affluent’ or ‘upscale’ consumer were due to many living the dream on credit. Then came the gas uptick in 2008. Then came the crunch on the market in late 2007 and 2008. Then came the ‘credit crunch’. Then came rising unemployment. Then came the mortgage crunch. Then they were cut off at the knees. Call it a pendulum swing or what ever you would like. Many were buying homes, cars, and consumer goods well beyond their means. They weren’t just slightly pressed on credit, they were over the top. I am not sure if ‘going online’ has anything to do with anything. It may be that these retailers are just now experiencing what others have been for a long time–a shift to online. I wouldn’t exactly describe the retailers mentioned as technology leaders and leading edge web-based retailing companies. Those who are truly affluent are always value conscious. If that now suddenly means frugal, it’s purely… Read more »
Ed Dennis
Guest
Ed Dennis
11 years 3 months ago

Most wealthy people do not depend on a salary or commissions for their income. Their income is determined by dividends and interest. If you look at the number of companies that have reduced dividends and combine that with the fact that no one is paying any real interest, the wealthy have taken a horrible hit. While there may still be plenty left over, no one is throwing anything away.

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