It’s been about two decades since the “aspirational” consumer was deemed a valuable target for the luxury market, but now that customer is starting to disappear. Upper-middle income shoppers stretching their budgets to buy logo-laden goods have been stymied by inflation and price hikes, especially on European products.
Multi-brand e-commerce sites such as FarFetch, MatchesFashion, and Net-a-Porter have taken a hit, after a strong pandemic recovery. Meanwhile luxury stores such as Gucci and Louis Vuitton are reportedly overstocked.
Part of the problem is a shift in spending from luxury goods to travel. “The customer that may have purchased a $5,000 handbag before the pandemic, is now choosing to take a 10-day European vacation instead,” says Blacks’ CEO Steve Pruitt.
Experiential spending has certainly surged in the past 2 years, and it’s hard to say when consumers will get back to aggressively buying goods.
According to analyst estimates, between 2% and 5% of customers account for 40% of luxury spending (Bain and Boston Consulting Group, respectively). Their average income is around $560,000 a year with over $1 million in wealth, excluding their primary residence.
Aspirational consumers, on the other hand, are defined as making between $100,000 to $500,000 a year and generally have a college degree. They are estimated to make up about 20% of the U.S. population.
The aspirational consumers who brought in revenue on relatively lower-priced luxury goods are no longer a steady source of cash flow. They have switched to buying more affordable name brand designers, such as Michael Kors and Tory Burch.
It’s now up to luxury retailers to reach into the smaller pool of wealthy consumers. But even some true luxury shoppers are starting to balk at outrageous prices, which have jumped by 25% on average since 2019, according to data company EDITED.
Despite the sticker shock, our merchants report that their highest-priced items continue to sell. And we see an opportunity for independent retailers to fill in the gaps left by luxury department stores and luxury e-retailers.
“One of the benefits that multi-brand sites offered was a well curated mix of high-end products and that is something that our merchants are great at,” says Pruitt.
“Add the white-glove service, and our independent merchants are poised to be the best providers of a true luxury experience,” he adds.
Another interesting trend shaping the market is that of “quiet luxury”, which shuns the visible logos and labels the aspirational customer has always looked for. True luxury is now moving toward an “if you know, you know” way of identifying high-quality designers and fabrications
“In a way, the shrinking market for aspirational customers is not a surprise,” Pruitt says. “True luxury buyers are raising the bar to retain their exclusive access.”
