After a lot of retailer nail biting this past December, the Department of Commerce has reported the numbers and, all in all, the sales year didn’t turn out as badly as expected. So while we sigh with relief, nobody reading the news or talking with consumers is delusional enough to think that retail is out of the woods yet. Consumers remain extremely cautious about spending; the average US household’s income is currently $71,274, down more than $4,500 from its high in 2006 of $75,810. The reality of this extended post-recession period is that the American middle class has lost much of its spending power, leaving retailers that have traditionally targeted this customer holding the bag and needing to find new consumer segments for growth.
If the middle-income customer is scarce, the logical place for retailers to look for new customers is one step up the income ladder: the affluent, which are defined as the top 20% of US households based on income which starts at around $100,000. With nearly 125 million American households in total, the affluent segment numbers just under 25 million households. In most any spending category, the affluent top 20% account for about 40% of total consumer spending, according to the Bureau of Labor Statistics Consumer Expenditure Survey. That means the absolute spending power of the affluent household is twice as big as the average middle class spend.
Of course, all affluent households aren’t created equally in spending power either, with the top 2%, or the ultra-affluents, roughly 2.5 million households (incomes starting at about $250,000) with much more discretionary income. But between the ultras and the middle-income consumer segments, there is an often overlooked group that, quoting Rodney Dangerfield, ‘gets no respect’ – the lower-income affluents or HENRYs (High Earners Not Rich Yet). These are the new mass-market affluents with incomes $100,000 to $249,999 and they number about 22.5 million households.
Tale of the Tape –The receipt tape, that is.
Every three months my company,Unity Marketing, surveys 1,200+ affluent consumers who recently purchased any high-end or luxury goods or services in 21 different categories, including home goods such as furniture and major appliances; experiential services such as travel and dining; and personal items such as fashion, jewelry, and beauty. In that survey, data is collected about those recent purchases including how much people spent.
In any given period, ultra-affluents spend between 2.5 times to 3 times more than HENRYs on high-end goods and services. But extend each segment’s individual spending across the entire range of the market, and the HENRYs have a market potential three to four times greater than that of ultras.
While the purchases of the ultras (mansions, yachts, private jets, and such) garner far more media attention, their small population makes for relatively limited contribution to the overall consumer economy. When it comes to the majority of national retailers, the big box stores and chains that populate shopping malls, the ultra-affluents really don’t have that much impact. The HENRYs, on the other hand, are the heavy-lifters in these outlets, critical to attract now and in the future.
HENRYs don’t make luxury purchases a regular thing as ultra-affluents are wont to do, but in categories where they really care, they can stretch to spend more, all the while scrimping and saving in other areas that don’t matter as much. Cheap chic — combining high-end accents with low-end basics for a stylish overall look — is an idea grounded in the shopping mindset of the HENRYs and now borrowed by the Hollywood glitterati as sophisticated and cool. It also is smart, since who can really tell the difference between a $15 GAP t-shirt and a $300 version from Saint Laurent without turning them inside out and reading the label?
Successful marketing to HENRYs requires a combination of mass-market and luxury-market strategies.
If retailers and marketers aim to draw more HENRY affluents, marketers must borrow strategies from the luxury marketers’ playbook, while refining the best practices learned in mass marketing to reach a critical and profitable new higher-value customer. Specifically, mass-marketing strategies must focus on value so that the HENRYs get a greater return on their spending investment, while the luxury-focused strategies are directed to delivering high-quality goods and services, including careful attention to superior materials and workmanship, and making customers feel pride of ownership for the items bought, as well as pride of belonging to the cadre of shoppers that are smart and in the know.
Here are some tips to maximize sales by attracting a more affluent audience to boost sales and generate growth:
- Be vigilant about service.
Nobody likes to slum it at retail, but some customers are more willing to forgo services in favor of cheap merchandise. HENRYs, on the other hand, have tasted the high life at retail and appreciate high levels of service, including well-maintained merchandise, intelligent displays, and service personnel who know how to make customers feel welcome. This level of service doesn’t have to come from high-end retailers like Nordstrom, either. Costco does it well, all the while offering sizeable and meaningful discounts on premium merchandise. Too many make the mistake of thinking that retail is a product business, when in fact it is a people business. Customers can find good product anywhere, and now anytime, thanks to the Internet. People go shopping to have an experience, and being treated well by other people is an incredibly important part of the package.
- Showcase quality and workmanship by telling inspiring brand stories.
Luxury marketers are experts about weaving stories around their brands to distinguish their high-priced goods from the ordinary, mass-market offerings. To appeal to HENRYs, marketers must copy strategies from the luxe branding playbook to set their products apart and above the mass. It can work for just about any product, even the lowly flip-flop. Havaianas uses clever story-telling and trendy design featuring colorful foot beds and slim thong bands to differentiate its product above the generic. Havaianas have become a true luxury flip-flop, with prices starting around $20. But what really sets the brand apart is its attention catching in-store displays featured in its high-end retailing partners like Saks Fifth Avenue and Bloomingdales, and its clever use of pop-up shops where people design their own flip-flops, thus transforming shopping into an experience.
- Play to a smart-shopper.
Higher levels of education, as well as income, sets HENRYs above the middle-income customers. Overall, just about one-third of US households are headed by someone with a college education; the number is double for HENRYs, or about two-thirds of whom have a college degree or better. Further, they hold management and executive level jobs, which means they also manage budgets. They don’t leave their business smarts at the office when they go home at night. They tend to be careful money-managers, trained to evaluate various purchasing options and able to make trade-offs to achieve the right return on investment. For example, many HENRYs don’t go in for status-symbol buying, specifically spending more than they can afford (i.e. Rolex) to make a social statement. In recent focus groups, a young HENRY lawyer shared that his status symbol watch was his Timex Ironman Triathlon, which telegraphs the message of who he is (an athlete) and his values (practicality, down-to-earth), rather than extravagance and luxury. In HENRY circles, bragging rights come from getting a good deal, as well as being in the know about smart purchases. And for HENRYs, the Internet is the tool of choice to make smart purchase decisions.
- Hit the premium pricing ‘sweet-spot’ between mass and class.
HENRYs, when given a choice between the good, better or best of the best in any product or service category, pick the middle ground. They want something above the standard issue, but not something super exclusive and highly priced. The best value by far can be found in the premium level, above the mass-market price but below the luxury level. Pandora is a jewelry brand that fully exploits the premium pricing space in jewelry. It has taken the sticker shock out of paying $500 to $1,000 for a charm bracelet by unbundling the price into its constituent charms for a $30 to $75 individual purchase. Pandora success is measured by consistently ranking among the top jewelry brands by HENRYs in Unity’s tracking studies.
HENRYs are high-value customers for every retailer up-market, down-market and everywhere in between. HENRYs are the new mass affluent customer segment that offers growth for retailers that understand their expectations of high quality combined with reasonable and fair prices, neither too cheap or expensive, with service that complements, not insults, the customer. Retailers today face tough economic headwinds and are not likely to find growth in the mass middle-market for years to come. The best prospect for the future will come by digging more deeply into the mass-affluent HENRY consumer segment.