Published: 22 January 2005
A survey by the Boston Consulting Group in the US has found “new luxury” shopping has become a major force â€“ worth $US450 billion in 2003, $US525 billion last year and probably worth $US1 trillion in 5 years. The term comes with capital letters to distinguish it from goods which are merely new & luxurious.
The research was presented to the National Retail Federation this week by Boston senior partner Michael Silverstein, co-author of Trading up: Why consumers want new luxury goods — and how companies create them (Portfolio, January 2005), a new edition of the best-selling 2003 book.
“The phenomenon is, in part, a result of middle-market consumers’ increasing, and now entrenched, pattern of â€˜trading up’ & â€˜trading down’ in order to acquire & enjoy New Luxury goods that matter to them.
“A consumer might buy grocery staples at Wal-Mart and sports clothes at Target in order to afford other goods that cost 200% more than average ones but have real technical benefits that satisfy emotional needs. These New Luxury items range from entry-level BMW cars, esoteric teas & Coach bags to spa vacations.
“New Luxury is affecting – and disrupting – just about every category. Each consumer has her own personal calculator to help her trade up in a few categories and trade down in others. Everyone does it in her or his own way,” Mr Silverstein said.
“The upshot is that the traditional mass market category will hollow out: Growth will be, nearly exclusively, in the New Luxury end and in the low-price, value end of the consumer market.”
Travel, spending on the home, cars & dining were the leading New Luxury categories in 2004.
Mr Silverstein calculated that New Luxury goods accounted for 20% of unit sales, but 40% of dollar volume & 60% of profits in the affected categories.
“Take a look at the pet food segment. Premium players, like Diamond Dog Food, account for a quarter of the segment’s sales but more than half of its profits. New Luxury is the one place where strong volume & exceptional margins can converge.”
He said many traditional mass market players lacked the insight, conviction & ability to capitalise on trading up & down.
Website: Boston Consulting Group