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RICH EXPERIENCES

Wealthy consumers want more than merchandise when they go shopping

By Michael Fickes

The affluent are spending more on their luxury experiences, and the trend raises some important questions for retailers and shopping centers. Will such expenditures, on spas, travel and the like, eat away at purchases of luxury products? Does growth in one category necessarily mean a decline in the other?

According to Stevens, Pa.-based Unity Marketing, which surveyed 1,126 consumers boasting average household income of $139,200 yearly, spending on all luxuries rose about 3.8 percent among such households last year versus the year before, to $52,588 per household.

The study divides the luxury market into three categories: home, personal and experiential. Luxury items for the home include art and antiques, cookware, electronics, furniture and floor coverings, and linens. Personal luxury items include apparel, pens and desk accessories, jewelry and watches, and wine and spirits.

Experiential luxury means entertainment and travel, and such services as beauty treatments and massage, and spending on these kinds of experiences could indeed rise at the expense of merchandise, says one observer. “Spending continues to shift towards the experiential, while they are spending about the same or slightly less in traditional luxury goods categories,” said Pamela N. Danziger, president of Unity Marketing and author of several marketing books for retailers and product manufacturers. Danziger says average spending on luxuries for the home fell 4.6 percent to $19,990 last year, from $20,948 in 2004. Personal luxury spending per household rose 5.6 percent last year, to an average $10,007.

The key change occurred in the experiential category, where average spending nearly doubled from $11,632 in 2004 to $22,746 last year.

Danziger views the trend toward experiences as daunting for luxury goods makers and retailers. Current spending trends are just the beginning, she says, and the luxury market will soon tip dramatically toward the experiential because of the size of the retiring baby boom generation, which makes up 57 percent of all households with income over $100,000 a year. Now that the boomers are retiring, they have already acquired the material trappings of luxury, she says, and buying another mink coat, diamond necklace or designer handbag just doesn’t have the same appeal.

Others disagree. How many luxury pocketbooks can you buy? posits one such dissenter. “I hear this question all the time,” said Robert L. Pressman, executive vice president of the national retail division of New York City-based Studley and former CEO of Barneys New York. “A statistical answer might suggest that it is a limited quantity. The right answer is an infinite number.”

The motivation behind buying a luxury pocketbook with a price tag of over $1,000 has nothing to do with needing another pocketbook, he suggests. A luxury pocketbook is not a utilitarian item to carry keys and wallets, he says; it is a fashion item. “Fashion changes all the time,” said Pressman. “As long as fashion changes, people will continue to buy what might seem to be a repetitive item. It is not, however: In the customer’s mind, it is a different item.”

Pressman does not dispute the growth of experiential luxury spending. He says the category is growing because there are more luxury buyers — affluent consumers 40 and older — with more disposable income than ever before. “These are people that work hard and have to deal with the pressures of life,” he said. “They look for things to make their lives more comfortable. They’ll go to a day spa or take a vacation. But they are not replacing luxury products with luxury services. This trend isn’t about replacing one thing with another. It is not a zero-sum game.”

Officials at bellwether luxury shopping center Bal Harbour (Fla.) Shops have noticed the rise in experiential luxury sales, but they, too, reject any notion that it comes at the expense of retail sales.

“We’re a microcosm of the luxury market here,” said Matthew Whitman Lazenby, general partner and director of leasing for the center. “Our customers still want to buy the latest handbag and latest designer clothing. Our numbers so far in 2006 are up 12.7 percent year to date and 23.5 percent in April, compared to last April. These numbers are up over the numbers for three consecutive record years.”

Still, Bal Harbour is adjusting its leasing mix to take advantage of the experiential trend in such areas as dining and spas. Lazenby says destination dining has become increasingly important to Bal Harbour Shops’ leasing mix over the years. The 500,000 square-foot, open-air center offers six restaurants, including The Zodiac Café inside Neiman Marcus. The center’s Italian restaurant, Carpaccio, generates over $10 million in business annually.

Overall, Bal Harbour’s restaurant revenues are up 7.9 percent year to date and 17.2 percent year on year for April. The center’s dining experiences are so popular with customers that it has decided to open a seventh restaurant later this year. La Goulue, as the new restaurant will be called, is to be a Bal Harbour rendering of the French bistro located on New York City’s Upper East Side.

Bal Harbour’s leasing history also suggests that experiential services are not all that new to luxury consumers. According to Lazenby, the center opened a Georgette Klinger day spa 30 years ago. The spa closed in 1994 after the death of its owner.

Given the growth of interest in luxury experiences, Bal Harbour is negotiating with another day spa. “We hope to bring them in by the fourth quarter,” said Lazenby. Like Pressman, he sees the growing luxury experience sales as a trend that accompanies but does not diminish luxury product sales.

Exclusive Resorts, based in Denver and Washington, D.C., is a three-year-old destination-club business created to tap the growing desire of the affluent for special vacation experiences. The company owns almost 300 luxury residences in 35 resort destinations in the United States, the Caribbean and Europe. Patrons pay a $195,000-$395,000 initiation fee to join the club. Members additionally pay annual dues ranging from $9,500 to $25,000. All this entitles members to 15-45 days per year at one of the residences. Exclusive Resorts has signed up about 2,000 members, making it one of the largest such clubs in the U.S.

Research suggests that the market for these kinds of resorts comprises some 4 million Americans with annual income of at least $200,000 and invested assets in excess of $1 million.

Exclusive Resorts COO Michael Beindorff says he doubts that experiences such as those offered by his company are purchased at the expense of luxury goods. He says he sees more affluent customers with more money today — enough money to buy plenty of luxury experiences and luxury products both.

So how many luxury handbags will a luxury consumer purchase? “As many as you can fit into your closet,” said Bal Harbour’s Lazenby. “And if you need a larger closet, you can get one of those, too.”