HELLO GORGEOUS!! Holiday shopping at South Coast Plaza, Rodeo Drive, the Beverly Center, or on Melrose made me feel like I had died and gone to heaven! And lucky for us shoppers, this sector of the retail pie is thriving as the recession pulls away.
The recent income trends bode very well for luxury good retailers because the U.S. is undergoing a transition not seen before in our history. In the past 30 years, income inequality in the United States has skyrocketed. While middle incomes grew during the 1990’s, the trend reversed course during the early 2000’s. Middle-class incomes continued to fall well into the economic recovery and never regained their high achieved in 2001.
Figure 1, below provides a view of income inequality peaks. The top line provides the percent of total income held by the top 10 percent of the population. What is most striking is what has occurred in the past three decades. In 1978, the wealthiest one percent of the population earned about 10 percent of total income; by 2008, this group was earning two hundred percent more, or almost 21 percent. Strikingly, the wealthiest 0.1 percent of the households, those with annual income of $1.7 million or more in 2008, grew to account for 12 percent of total income, from 4 percent in 2004.
Further evidence of this uneven growth is seen in Figure 2, below. From 1967 through 2010, the top quartile representing average household income grew or got significantly more affluent, while the bottom two quintiles remained almost flat.
As the wealthiest in the United States were gaining, an increasingly larger share of the national income pie, expenditures on luxury goods thrived. According to Bain and Company’s Luxury Goods Worldwide Market Study for 2012 global luxury goods are defying concerns over Eurozone upheaval and fears of a slowdown in emerging markets, with an average of 8 percent annual increase in global sales through the middle of the decade, 2015.
The United States luxury goods market, as part of this trend is predicted to grow by five to seven percent in 2012.
The average age of the Japanese, European and United States customer is increasing, while the Chinese consumer average age is decreasing. This is creating a generation of luxury consumers with different tastes. More women are buying business clothes and watches, creating new markets for luxury retailers. Men are becoming increasingly “metro”, spending on beauty/skin products and fashion, products generally reserved for women. Luxury goods were once the province of “old money” but the sector is now being supported by households newly arrived in the upper income categories. Further, the emergence of premium and “cheap-chic” brands are forcing luxury brands to offer more directly and consider/offering lower priced segments for these consumers. “Omnichannel” marketing, bringing together social media, e-commerce and mobile devices, is forcing these brands to rush into this segment or lose ground. Overall, the segment is showing growth significantly above conventional retail.
As evidence of the growth of retail in the United States, year over year growth in the overall holiday spending in the sector and “GAFO” is given in the following text table:
While overall sales were declining or growing marginally, the luxury sector was thriving and is expected to continue to grow for the next five years. What will happen to our society as the rich get richer and the poor get poorer?