Why The Luxury Market Continues To Roar
by Alf Nucifora
Astute market watchers cannot help but notice the continuing exuberance of the luxury marketplace. With Americans getting richer by the hour, the demand for luxury products seems insatiable. Recently I spoke with Greg Furman, Founder and Chairman of the Luxury Marketing Council, a global networking organization with membership incorporating some 500 of the world's most prominent luxury brands. His take on this rapidly changing sector bears heeding.
NUCIFORA: Let's talk about the luxury marketplace. Size? Product categories? Seminal shifts? What's happening?
FURMAN: In the last decade it has been the most robust market of perhaps any business sector. If you look at the regular retail mass market, its gross revenue growth over time, the increases have been in the range of 4%-6% annually. For the last decade, the luxury category has grown anywhere from 20% - 32%. In the U.S. alone, luxury is a $400 billion market. Authorities estimate that it will grow at a rate of 15% a year and will become a $1 trillion market by 2010.
On the consumer side the numbers for the U.S. are staggering. There are 1.2 million households with a net worth of over $5 million, up from 300,000 in 1983. Real household income for the top 20% of households is up 70% in the last 20 years. 215 million people will be over 50 by 2010. As a result, $12 trillion in inheritance will change hands in the next 20 years. The top 5% are richer. In the early 1980s they accounted for 16% of the income earned. Today they account for 27%. The rich are definitely getting richer.
NUCIFORA: Profile the customer.
FURMAN: The best customers, the 2.7 million in the U.S. with liquid portfolios of $1 million or more are changing in a number of ways. They're demanding more high-touch, especially in the aftermath of September 11th. They want sophisticated marketing, marketing intimacy, one-to-one marketing, what I call intelligent coddling by brands that have not traditionally been used to customizing their marketing programs. It used to be that the luxury buyer was an old Protestant white guy. Now, what was once an homogenous market has really flipped and is much more diverse. Take entrepreneurs, for example. Women who have left the corporate world are the fastest growing group of entrepreneurs in the country. Ten million of them are successfully growing businesses in the U.S. They are what I call brand-sensitive in the sense that the brand is the price of admission. But luxury brands no longer live by brand image alone because the customer has become increasingly value-driven and more and more demanding of superior service, intelligent communication and a personalized understanding of their wants, likes and desires.
NUCIFORA: What else turns them on?
FURMAN: One-to-one, personalized, high-touch, highly customized marketing which demonstrates understanding of their needs, wants and values.
NUCIFORA: And they feel as though they warrant that because of the price they're paying and who they are?
FURMAN: Exactly. The biggest trend of all, and the one I should have mentioned first, in addition to the search for the memorable, the unique and services that have high value, is what I call the rise of connoisseurship and the hunger to know. Never before has the luxury market seen an audience and community of highly affluent buyers as interested as today's luxury consumers in learning what constitutes the best of the best. What has happened is that a lot of the Boomers who spent most of their careers to get to where they've got, to accumulate that incredible nest egg by having made a lot of money on the corporate side, or sold businesses and retired early, are reinventing themselves. They now have enough time to do what they didn't have time to do before, which is understand, savor and sample the best of the best, whether it be wine, travel, apparel, yachts, cars, fine jewelry, cultural experiences, etc. This community of soon to be 200 million (by 2010) is hungry to learn, and wants to be educated, in a sophisticated fashion, about what constitutes the best.
NUCIFORA: Who's doing luxury marketing well right now? Any standouts?
FURMAN: One that I think is doing a phenomenal job and wasn't traditionally thought of as a luxury brand is Coach. They've absolutely knocked the cover off the ball. They've done it right. They've integrated all of their strategies so that they speak with one voice. They have consolidated their product line and developed new lines that have inspired the audience of luxury buyers. They've also got great advertising.
Cadillac. They've taken our grandfather's car and turned it into one of the best-selling luxury automotive products around just by re-engineering and having the determination to have it not be your grandfather's car.
I think David Yurman in the jewelry sector has done a remarkable job. David and Sybil Yurman started as designers and now they run a $600 million business.
NUCIFORA: Where did you get the idea for the Luxury Marketing Council?
FURMAN: When I was managing the marketing function at Bergdorf Goodman, I discovered that many competitors were coasting on their brands and were not as sophisticated as packaged goods marketers. They believed that because they had the brand, therefore they (the customer) would come. There was no idea about database marketing and very little strategy. Merchants were getting promoted into marketing. And there was very little classic packaged goods understanding or application as they pertain to the marketing of luxury goods. Combined with that, was an amazing European hauteur…much of it justified incidentally, but very disdainful and uncomprehending of the depth and breadth of the American upscale market, and of the kind of marketing techniques that are required to service it.
And so I got the idea of assembling the thought leaders in luxury marketing, the best and the brightest, the decision makers, across all facets of the luxury mix…services, and retail…get them together and help them figure out ways to get more money from the people with the most money and then serve as a greenhouse to grow collaborations and partnerships among members, explore critical issues and trends and share best practices.
NUCIFORA: You've got chapters now in?
FURMAN: Boston, Atlanta, Dallas, New York, San Francisco, London, Paris, Dubai, Seoul and soon Tokyo, Los Angeles, Toronto, Palm Beach, Honolulu and Orange County.
NUCIFORA: Example of members?
FURMAN: Dunhill, Monte Blanc, Bergdorf Goodman, Neiman Marcus, Radisson Seven Seas, Mandarin Oriental Hotels, The Orient Express, Cartier, Tiffany, Rolex…there are now 250 companies in the New York chapter and 500 member companies worldwide.
NUCIFORA: Give me an example of some prototypical events that the Council sponsors.
FURMAN: There are many. It's a mix of social and business, an exchange of best practices. But the real heart of what we do is to look at every facet of the marketing mix…PR, advertising, database marketing, loyalty programs, direct marketing, guerrilla marketing, collaboration and partnerships. We bring in speakers and authorities on all those topics including futurists, authors and panels comprised of member CEOs and marketing heads.