Consumers’ post-pandemic gains are good news for luxe dealers
By Joe Higgins, Quest 4 Quality
There is an extraordinary luxury market in America.
High-end desires are in our DNA; most consumers dream of expensive houses, cars and the trappings of success. It is simplistic, but there will always be a market for quality, scarcity and prestige among wealthy Americans.
Since the end of the pandemic, we have seen exceptional gains in home equity, stock portfolios and retirement accounts. Wealth has increased for most Americans over the past three years as housing prices have been up an average of 46%, and home equity has more than tripled, from $8 trillion to $31 trillion, and it’s still rising.
Investors too are sitting on top of the world, pushing the thirst for luxury products. The S&P 500 over the past 12 months has increased by 17%, and yield investors are earning 5% on CDs and 4.7% on the 10-year Treasury bonds. Vanguard and Fidelity reported last month that there are more 401(k) and IRA millionaires than ever in U.S. history.
It is an excellent time to be in the luxury market.
Housing
The high-end housing business in the U.S. has held up well in an atmosphere of rising costs and high interest rates. Consumers are eagerly buying homes in order to hold appreciating assets that provide a hedge against inflation.
We have also seen all-cash buyers of multi-million dollar homes in nearly 50% of transactions this year. This consumer is not affected by high interest rates nor limited by credit availability. Even with inflation on luxury products at its highest level in 40 years, Americans in the top third of income levels are still traveling and consuming.
One strong indicator of luxe demand is the earnings from luxury home builder Toll Brothers. Home sales were flat for the 12 months ending April 30, 2024, but since then sales have been up 13.2% with $10.5 billion in sales.
Home Goods
In our neck of the woods, which includes appliances, home furnishings and electronics, there was a slowdown in Q1 in the luxury category. However, the second half of this year is seeing a definite turnaround.
Appliances started the year off -8.7% in Q1, and luxury products also fell. Since then, the industry has been trending toward flat. I spoke with several manufacturers and a few of our members about the premium business. It was clear that the high-end sales suffered earlier this year, and in some cases were off 20% or more. However, they see that segment recovering now and continuing to grow into the second half of 2024.
In contrast, the super-premium side of the appliance business seems like it enjoyed a solid start for 2024 and we anticipate that it will carry over into the second half.
While the past two years of high inflation and rising interest rates have held back the traditional clothing industry, the luxury market, according to the CEO of Saks, Marc Metrick, is still strong. He said recently that his stores are not seeing a pullback from consumers trying to save money. To quote Metrick, “Luxury is permanent.”
A Cue from Clothing
Years ago, after establishing its flagship store in Manhattan, Tiffany decided it needed a location on the West Coast and opened shop on Rodeo Drive. Years later, the jeweler brought luxury to the Sun Belt states. Today, super-premium products can be found in Las Vegas, Phoenix, Austin, Dallas, Tampa and elsewhere, as merchants and manufacturers follow wealthy shoppers to cities all over America.
Automobiles
The market for fine automobiles has not waned either. Overall sales at Mercedes-Benz were up 15.6% in 2023, while sales of high-end gas cars and electric vehicles increased 131%. At the same time, sales of fully electric SUVs jumped by 216%.
Watches
One of the most prominent luxury brands for top-tier buyers is Rolex; few labels are held in such high esteem. It is an unnecessary purchase in a world filled with smart watches that are so functional. Yet Rolex reported 2023 sales of $10 billion, it highest tally ever, and is on track to break that record in 2024.
Final Thoughts
I mentioned this in my last article: the top third of American consumers have more wealth today than ever in U.S. history. They don’t ask about prices and they don’t shop online; they like the joy that comes from walking into a Bentley showroom, a Gucci boutique or a Tiffany jewelry store and purchasing exactly what they want with little or no consideration for price, and they appreciate (expect?) the highest level of customer service.
This market often determines our fashions, the shape of our cars and the restaurants we choose. It’s never stagnant, as it evolves and adapts while creating new consumer preferences.
Are you adapting to the luxury market? Is your business positioned to deliver the experiences these consumers want and expect? Will you be maximizing your mix — and margins — by participating in this prestigious segment? All questions you could and should consider as this segment might be awaiting you!
Joe Higgins is a 44-year veteran of GE and Whirlpool Corp. who brings his executive experience to bear as a business consultant, AVB keynoter and YSN contributor. Visit his website, Quest 4 Quality with Joe, at Q4QwithJoe.com.
