The Luxury Marketing Council Dallas, of which I am the Founder and CEO, holds an annual breakfast for the CEO’s of its member companies. The purpose is to provide a shared perspective on the forecast for the luxury market for the new year. We were joined by Ash Rajan, Director, Global Markets, Merrill Lynch, who provided opening comments.
Notes on Comments by Ash Rajan:
The news for the U.S. economy and the luxury market is bad and good.
The bad: Oil prices are rising; inflation is a concern; the Fed will cut rates and this will drive the dollar down further. The trade imbalance will worsen. Corporate profits are falling and will continue to fall for a while. For all intents we are in a recession. In this environment mass and “Aspirational” consumers will defer purchases. This condition will reach a crescendo in 6 months when the results of rate decreases and government stimuli such as tax incentives make an impact. Growth in the economy and spending will then resume.
The good: Markets move based on expectation and so will advance ahead of the improvements and end the year ahead by ~10%. The truly wealthy will not be impacted by the current downturn. For them this is a blip. Their spending is a-cyclical as demonstrated by the current boom in antiques, fine art auctions and sales of very high end homes.
Four types of rich are taking the lead in spending: (1) Nouveau Riche who suddenly come into wealth through an event like the sale of a business ;(2) Global rich from the BRIC countries (Brazil, Russia, India, China) whose economies are rapidly expanding and creating new concentrations of wealth; (3)Commodity rich who are involved in materials (copper, oil, steel, etc.) in short supply as a result of demand by BRIC and other growing economies; (4) Eco-rich (“eco” is Greek for “household”) who inherit money or , still living at home, are able to spend their parents wealth.
In addition to these factors, luxury merchants should recognize there is a secular trend towards experience as the basis for luxury. Comfort, convenience, and the sensation of luxury (“decadence”) are the new drivers of luxury consumption rather than mere ownership of things. Luxury is not just the fine hotel but the services and experiences in the hotel. It is not just the materials from the fine tailor but the way the staff handles your appointment. It is not just the fine pastry but the view one is provided while enjoying the pastry.
In light of these conditions, Luxury merchants should review their business models and avoid over-reliance on traditional sources of business and traditional ways of attracting and satisfying clientele.
The notes, above, are based on my notes of Ash's comments. Any error is my responsibility.
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