For those looking for real evidence of global economic recovery, here's some good news: Luxury is back. While signs of returning consumer confidence are frustratingly absent in most spending categories, luxury spending across the globe is bucking that disheartening trend. In fact, many geographic areas saw significant double-digit increases in the first quarter of 2011 over last year, including Japan and Australia's 47 percent jump and Brazil and India's 34 percent growth, according to spend data from American Express Business Insights.
And while the strength and resilience of the luxury sector stand out as newsworthy at a time when good economic news is frustratingly scarce, the real story is less about the figures and more about who is driving them. The characteristics of the consumers driving this spend have changed - and they have certainly changed!
The recession, quite surprisingly, has given rise to an emerging luxury consumer known as the 'Luxury Newcomer'. This Luxury Newcomer exhibits unique spending behaviors and preferences unlike those of any other luxury consumers. Understanding who they are and what appeals to them should be a top priority for marketers as this segment of the market is likely to have a profound impact on the future of the luxury retail category.
The Luxury Newcomer, as the name implies, is completely new to the luxury market. Prior to the recession, this consumer had not made one single luxury purchase - in any Luxury category. While the Luxury Newcomer is not yet a majority spender in any one market, American Express Business Insights spend data shows overall spend in the US is 36 percent in the category, nearly the same as the most active luxury shopper. India (33 percent) and several European countries (France, 21 percent; Italy, 28 percent) are not far behind with a growing share of spending from this emerging demographic group.
In analyzing the Luxury Newcomer more closely, we have found that he (yes, he, the group is often predominantly male) does not transact like the traditional luxury consumer. While represented by all generations, the majority of Luxury Newcomers are younger, specifically Gen X (roughly those in the 29-46 age range). In contrast to the Active Luxury shopper, the Gen X Newcomer is generally less affluent, but maintains a strong sense of spending confidence - combined with an early taste for luxury - making this group a consumer worth pursuing as the recovery continues.
Luxury marketers and retailers should understand the nuances of the Gen X Newcomer to be successful in the short and long term. This group has different priorities when it comes to brand preferences, they are much more experimental and willing to try new brands. In contrast to their counterparts, Gen X Newcomers have embraced the online-only platform making them the heaviest spenders on flash-sale sites and online only discounters such as Gilt Groupe, ideeli, and Rue La La.
Newcomer spenders put electronics and restaurants at the top of their lists and prioritize clothing, entertainment and home décor more than other luxury consumers. That said, it's important to note that luxury to this consumer is not necessarily the next fashion brand - it's more likely the latest smart phone or designer chair, and most likely will be purchased online. For example, in the UK, Gen X spend in electronics has been growing 75 percent faster than that of Baby Boomers.
The Gen X Newcomer embraces travel, and even this group's travel choices are non-traditional. They tend to choose places most likely off limits to their parents' (Boomer) generation. For example, China, Thailand and Brazil are common travel destinations for Gen X while Boomers prefer European destinations such as Italy or developed areas such as Japan.
The Luxury Newcomer has made it through the recession and developed a taste for luxury at the same time, which will only increase their appetite for the category in the future. That said, it's important for luxury merchants across all categories (e.g. fashion, dining, décor, entertainment) to reach this consumer in a meaningful way and also ask themselves a few questions: What are the existing and emerging customer segments? Where is my long-term competition (i.e. is it really my industry peers or an entirely new category like electronics or home entertainment) and how should my business optimize marketing channels to reach the new Luxury Newcomer?
With a spate of new data analysis capabilities and innovative marketing initiatives available today, the answers to these questions are not far off. The Luxury Newcomer is a compelling and worthwhile consumer category seeking value, excitement and entertainment through their shopping experiences, and retailers and brands that successfully provide all of the above are sure to be successful in capturing this consumer for the long-term.
(Bill Glenn is President of the Global Merchant Services business at American Express Company.)