The global financial crisis roughly a decade ago altered the consumer economy. Wealthy consumers in the US are spending more money on intangibles like insurance and education.
The implications of such consumer trends are unsettling; they will likely increase socioeconomic inequality and sustain a small, privileged elite.
Even as they curtail spending on material goods, however, according to Currid-Halkett’s book, people in the highest income groups have dramatically increased spending on inconspicuous investments that can enhance well-being and create opportunities - such as retirement planning, health insurance, and education.
And, an increasingly productivity-focused global economy places a premium on consumption that facilitates leisure time, thus an increase in spending on things like housekeeping, gardeners, or childcare that replaces spending on things like handbags, televisions, and other material goods.
However, such immaterial consumption generally costs much more than conventional material goods. That limits the ability to spend on retirement or prestigious college education to only the top income groups (as economist Raj Chetty and his colleagues reported in a 2017 Equality of Opportunity Project paper, children born into the top 1% income group are 77 times more likely than other children to attend an Ivy League university).
One of the best examples is found in the US, where people in top income groups are now spending less on material goods, and more on services and experiences that enhance their quality of life and intergenerational mobility, according to University of Southern California Professor Elizabeth Currid-Halkett’s 2017 book The Sum of Small Things: A Theory of the Aspirational Class. According to the book, middle-class consumers have seized on cheaper goods to spend increasing amounts relative to their total income, while spending on material goods among people in the top and low-income groups has declined since 1996. In her book, Currid-Halkett describes these US consumer patterns as a function of specific trends: due to the mass-production economy, for example, material consumption is cheaper and more accessible to many people, boosting the omnipresence of material goods while reducing their luxury appeal; in addition, the global economy places a greater emphasis on goods and services that can increase upward mobility, so increased spending on education is a reflection of this value system.
The Global Luxury Market
The wealthy are seeking out more personalized experiences and bespoke opportunities.
These economic and political realities, along with changing luxury consumer demands, are forcing retailers to rethink both the goods that they sell and how they sell them. Luxury sales growth is now being driven by millennials and Generation Z (generally considered to include people born in the mid-90s and after), according to the report, meaning that these groups must now be catered to with more personalized experiences that blend offline and online offerings - via means including “voice commerce” conducted through the Internet of Things, augmented reality, and artificial intelligence.
By the end of 2017, the global luxury goods market was recovering from economic uncertainty and geopolitical crises and was approaching an estimated $1 trillion in size, according to a report published by Deloitte. However, while China is expected to remain among the fastest-growing luxury markets, according to the report, the US market may be hindered by a lack of wage growth, and uncertainty looms of the United Kingdom’s market due to Brexit, a weakened pound, and declining purchasing power.
Increasingly, luxury consumers are seeking experiences in the form of travel, hotels, restaurants, and bespoke opportunities (a concept first advanced by B. Joseph Pine and James Gilmore in a 1998 Harvard Business Review article). Luxury travel provider Black Tomato, for example, offers a service that has travelers show up at the airport without knowing where they are headed - before dropping them in a mystery location where they must rely on their “wits and inner steel” in order to complete an expedition. Because what starts as a luxury for the elite often goes mainstream, experience and individuation will likely become bigger parts of the broader global retail market.
One example cited in the Deloitte report is Gucci, the Italian fashion house, which saw online sales increase by 86% in 2017 and which now relies on millennials for about half of its total revenue; Gucci has reinvented itself for younger buyers via its “geek-chic” efforts and redesigned its website in 2016 to provide visual presentations and stories, and personalized customer service through webchat. Much like artisanal manufacturers, luxury brands will need to justify the value of their products based on more than just their appearance and immediate utility.
Clarkson Consulting put together a Luxury Retails Trends Report 2022 that highlights that the focus of 2022 for luxury retailers, will be on increasing access and leveraging technology to better meet consumers’ needs and expectations as we settle into an in-person and virtual hybrid world that is here to stay.
RETAIL, CONSUMER GOODS AND LIFESTYLE
The 21st century consumer landscape is remarkably different from its 20th century predecessor - not least due to a pandemic that decimated retail sales in many places in early 2020. Material goods sitting in stores once defined the market, but people now expect more. The wealthy are seeking out luxury experiences and spending heavily on long-term investments like education and retirement, while many members of the global middle class (who are now as likely to come from Mumbai as Minnesota) are seeking out goods that reflect their personal values - even as much of their spending has been limited by wage stagnation.
Trends shaping retail on 2022 are:
Conscious consumerism, which has been reshaping consumer behavior for several years, is continuing to be a force to be reckoned with. From environmental concerns to a desire to see better representation in the products that are sold, the consumer in 2022 expects the businesses that they buy from to be doing better.
Social commerce and Live Streaming technology as not just a sales channel, but an “extremely useful way for brands to connect with consumers” as “the line between shopping and entertainment blurs”.
For retailers, focusing on how to deliver a seamless, integrated and stress-free experience to their customers as they move from the digital world to the physical, and back again, has got to be a top priority for 2022.
Tapping into the power of local to drive loyalty, as well as looking at other ways to strengthen relationships with existing customers will be crucial as retailers look to ride out the waves of change in the year ahead.
Ultimately individual retailers always need to give a strong reason for consumers to buy, and that will be particularly true as they compete with the return of eating out, entertainment and travel.
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Global Middle Class Consumers
The growing global middle class is creating opportunities for brands and raising questions about consumerism. According to a working paper published by the OECD, as recently as 2000 China accounted for just 1% of global car sales, while by 2010 that figure was on track to reach 13%; and while General Motors sold ten cars in the US for every one car in China as of 2005, that ratio was approaching one to one just five years later, according to the report. The mobile phone market tells a similar story - in the second quarter of 2018, Chinese device maker Huawei, which controls nearly one-third of China’s smartphone market, surpassed Apple to capture the second-biggest global market share, according to a report published by IDC.
As market-based, for-profit production expands into new regions, an expanding global middle class is emerging. While some economists identify members of this global middle class by their ability to purchase a car, the United Nations and the Organisation for Economic Co-operation and Development define membership by the ability to spend, earn, or purchase between $10 and $100 per day. Regardless of how it is defined, the global middle class is clearly making a significant contribution to the global economy.
Research has shown that consumers tend to remain loyal to the brands that they adopt early, and that brands that capitalize on their “initial consideration” can remain successful for decades to come. While in-store experiences and word-of-mouth play bigger roles in emerging markets, middle-class consumers in developed countries are asking new questions about to what extent their consumer experiences reflect and enhance the quality of their lives.
The emergence of a global middle-class consumer must therefore be accompanied by a consideration of important questions about how we all should best measure personal success.
Some research suggests that economic development and happiness are often at odds. Known as the Easterlin paradox, named for the economics professor who first advanced this theory in 1974, it holds that increased economic options actually hinder the quality of life. As Easterlin himself has indicated in subsequent studies, China is perhaps most emblematic of his theory - as the emergence of a free market in that country since 1990 has occurred in tandem with a declining feeling of individual well-being among the population.
Companies and retailers have much to gain from tapping into this expanding global middle class.
In the 1970’s and 80’s, manufacturing began migrating to parts of the world that offered cheaper labor and adequate resources. From 1990 to 2012, for example, employment in the American textile and apparel sectors contracted by 76.5%, according to US Bureau of Labor Statistics data.
However, changes in preferences have prompted a wave of specialized, small-batch, artisanal production that is bringing manufacturing back to urban centers in the West. For the first time in decades, American manufacturing has expanded, mostly due to small firms that employ 20 or fewer workers.
Consumers are spurning mass-produced goods in favor of those rooted in a sense of place.
Much of this “maker movement” stems from consumers’ desire for more unique, curated goods. It represents a return to local, individualized production and services where transparency regarding practices and points of origin function as key measures of value. People want things that transcend utility and suggest personal values and cultural capital. “Fairtrade,” “direct trade,” humanely-treated animals, and sweatshop-free clothing contribute intangible value to products in today’s consumer economy, making these qualities an important part of marketing strategies.
Much like the Arts and Crafts movement influenced by the designer and activist William Morris in the 19th century, today’s artisanal manufacturers and their customers eschew the standardization inherent in globalized mass production. Instead, the goods that they embrace are a return to more taste-specific local production.
The desire to buy from the online vintage and handicraft emporium Etsy, to eat organic, or to drink fair trade coffee may have social and cultural consequences, but it does not necessarily involve buying a new type of food or clothing with a practical utility different from previous versions.
Meanwhile, the human and environmental costs of mass-produced goods have sparked an increased consciousness about consumerism. Where things are made and how they are made has both practical and stylistic implications, however; artisanal production does not necessarily fulfil a specific need, apart from aesthetic and social desires.
Part of discerning what artisanal goods are worth therefore relies on curation by key gatekeepers - editors, journalists, social media stars, and others - who can cultivate a taste for, and attach a status to, particular goods. These goods are not necessarily expensive; their value derives from what they stand for, and where they come from.
New Patterns of Consumption
Whether it is at malls in Middle America or the boutiques of Bond Street, consumers are no longer engaging in traditional retail. Even some online boutiques, such as Net-a-Porter, have stopped shipping during the outbreak. Consumer behavior is changing as buying power shifts, the wealthy pursue experiences, and a coronavirus spread.
Many of our notions about consumption must be rethought. While the consumption of retail goods is still an omnipresent driver of the global economy, new forces are at work that challenges us to think differently about retail and consumption patterns.
Consumer Expenditure data from the US Bureau of Labor Statistics suggest that spending among those with the highest incomes has shifted in the post-financial crisis period, with less emphasis on material goods. Instead, people in this group are now more interested in buying experiences, and in key, long-term investments like retirement and education.
For the wealthy elite, the rise of experience-driven consumerism was well documented in Chrystia Freeland’s book Plutocrats - a portrait of people who enjoy far greater wealth than their (also wealthy) predecessors only a few decades earlier. Now, and for the unforeseeable future, these patterns of consumption are on hold - as COVID-19 shows no signs of retreating. Many of our normal consumer habits have altered dramatically as restaurants, vacations, and other experience-driven consumer expenditures are no longer possible.
The expanding middle class in developing countries has become key for the global consumer economy. And while the middle class is still spending significantly on material goods, economists point to wage stagnation as a significant hindrance for people in this group living in developed countries including the United Kingdom and the US.
In 2015, North America accounted for 18% of global middle-class consumption, though that is expected to fall to 10% by 2030, while Europe’s share declines from 31% to 20%, according to the Brookings Institution. Over the same period, the middle-class spending accounted for by the Asia Pacific region is expected to grow to 57% from 36%, as China replaces the US as the largest contributor to the global consumer economy.
According to a report published by the Organization for Economic Co-operation and Development in 2018, annual nominal hourly wage growth in OECD countries has fallen to 2.1% in recent years from 4.8% in the pre-financial crisis period. The UK actually experienced a decline in annual average real wages between 2007 and 2017, according to OECD data.