by The luxury category has been growing in leaps and bounds since 2020. The growth from 2020 to 2021 was phenomenal. And that rate repeated itself from 2021 to 2022.
Just when everyone thought there was no way this growth could continue at this momentum, it grew as much again in 2023. For anyone with a focus on the luxury business, it has been one of the greatest times to be in business ever. For those who were slugging it out trying to stay alive in promotional price points or getting by in mainstream price points as they shrunk, what went on at the upper end may have happened under their noses.
The luxury category has certainly shown resilience despite wars, bumps in the road and economic slowdowns, unlike other price point categories. All of this growth begs the question, what should we expect to happen in 2024?
The luxury category will likely not continue to grow at the incredible pace that it has in the past three years. That’s the bad news. But the good news is, most forecasts say it will continue to grow — just not at record levels. And almost everyone agrees that the luxury marketplace is not going to start shrinking either. Not this year, or any year through the forecasts of 2028.
Here are a couple of thoughts worth understanding about the luxury business:
The luxury business is changing in a few different ways.
In the old days, if a manufacturer made something expensive, there were always some consumers who were ready to buy that product simply because it was made the best way or with the best materials. Simply, they would spend more because it was “the best.” Price was a cue to quality and that is where a consumer would spend their money. A couple of decades later, greatly driven by the automobile business, we learned how to brand expensive goods to an aspirational lifestyle. Corvettes, Thunderbirds, Cadillacs, Lincolns all showed us consumers that we could be a better somebody if we bought better things.
The first way the luxury sector is changing is who is spending money. It is becoming much younger.
- Boomers (born from 1946 to 1964) represented 33% of luxury purchases in 2016. This year they represented 11% of the luxury market.
- Generation Xers (born between 1965 and 1980) represented 38% of luxury purchases in 2016. This year they represented 24% of the luxury market.
- Millennials (born between 1981 and1996) represented 27% of luxury purchases in 2016. This year they represented 45% of the luxury market.
If the only people we are selling luxury goods to have gray hair and still write us a check, we are completely missing the luxury market.
The second way that the luxury market is changing is what people are spending their money on and what is considered luxury.
From a sheer product standpoint, today’s luxury consumer is looking for goods that are both real and not mass-produced. They aren’t looking to spend more for something with a different label on it that is more or less the same as its lower-priced counterpart. They are looking to spend more on something that is “legit.” Something special and uniquely different. And better.
There once was a day when products from big companies were seen as a good thing. That day ended in the last decade or so as we started eating at farm-to-table restaurants, drinking craft beers and started staying at someone’s VRBO instead of at a big chain hotel.
More distinguishing is today’s luxury consumer spends money on luxury experiences, luxury experience goods and luxury products. These may sound the same, but they are not, and their rate of growth is very different.
“Luxury experiences” are up 15% this year. Some of this great growth may be an outcome of the pandemic. Luxury experiences include things like cruises, vacations, spa treatments, fine dining, expensive wines and top-shelf liquors, premium ice cream, live concerts and live sporting events. These luxuries are things we consume and then they are gone but we have the memory.
“Luxury experience goods” are up 10% this past year. Luxury experience goods are things consumers overspend on that they get daily pleasure from as they own them. At the very top end of this category are private jets, yachts and grand pianos.
In the middle are things like an at-home espresso and cappuccino machine, premium pen, commercial oven and cooktop in the kitchen, commercial gas grills and pizza ovens on the lanai, sports car, tricked-out trucks, swimming pools, designer purses, fine linens, plush towels and, yes, a luxurious mattress.
The most important part of this category is that it is not as income-dependent as you might think. Consumers don’t need to make a million dollars a year to buy a machine to make lattes at home. They don’t need to have six-figure cars to buy four-figure handbags. These goods are often aspirational to HENRY’s (High Earners Not Rich Yet) and they buy them one at a time.
Traditional “luxury goods” are up 3% this year. Traditional luxury goods are things that are expensive for the sake of being expensive. The finer “things” as they say.
Understanding the difference between these three types of luxury products is everything. As we sell ultra-premium-priced mattresses, we compete against dollars spent on travel as an experience. At the same time, if we are selling a mattress as a “luxury experience good” rather than a “traditional luxury good” based on the fact that it is well made and costs a lot, we will be selling at an entirely different level to a much broader and younger base.
