L E K . C O ML.E.K. Consulting Executive Insights
EXECUTIVE INSIGHTS VOLUME XII, ISSUE 7
Affluent Consumers Are Powering The Retail Recovery
Affluent Consumers Are Powering the Retail Recovery was written by Andrew Rees, Vice President and Retail and Consumer Products Practice Leader; and Dan McKone, Vice President of L.E.K. Consulting. Please contact L.E.K. at [email protected] for additional information.
While many Americans are cautiously encouraged by economic
recovery signals, the nation’s most affluent consumers are rebounding
more rapidly than the average consumer. Thanks to the resilient
stock market, America’s high-earning households are opening
their wallets and spending at a significantly higher rate than
the general population. This marked shift in affluent consumer
spending patterns has significant ramifications for retailers who
have been facing stagnant sales.
The high-income bracket has historically made a disproportionally
large contribution to domestic spending, with households
earning more than $150,000 annually representing more than
half of U.S. retail sales1. Wealthy individuals have also not
traditionally been as price-sensitive as other population
segments, and typically make purchases based on value and
quality rather than absolute price.
Approximately one year ago, these high-earning households
lost confidence in their personal finances and began to strongly
reflect the general population’s pessimistic consumer sentiment
(Figure 1). Now that the economy is recovering, wealthy
consumers appear to be abandoning the relatively austere
spending habits of other Americans. To fully understand this
shift, L.E.K. contacted more than 2,000 U.S. households in
April 2010 to gain insight into Americans’ spending patterns
for its semiannual Consumer Sentiment Survey.
The Affluent Are More Optimistic
While the attitudes of U.S. households have only improved
modestly since the depths of the recession, high-income homes
have an increasingly positive outlook. L.E.K.’s research found
that households earning more than $150,000 annually are much
more likely than the general population to believe that their
financial conditions have recovered or were never affected (39%
to 22%, Figure 2). On average the general population believes
that they are still more than a year away from “personal recovery”
from the downturn; however, affluent consumers generally
believe that their situations will return to normalcy by Q4 2010.
Not surprisingly, the return of affluent consumer confidence
seems to have tracked the relative rebound in the equity
markets, with the most affluent consumers soaring back with
S&P 500 growth (Figure 3). Since spending is highly correlated
with consumer sentiment, it appears that the wealthy are
literally pulling the U.S. out of its recession.
Figure 1
Net Percent of Respondents
October2008
April2009
October2009
April2010
>$200K
>$150K-$200K
General population
Better 40
30
20
10
0
-10
-20
-30
-40
-50
Worse -60
Source: L.E.K. Consumer Sentiment Survey
U.S. Sentiment on Personal Finance by Household Income, Today vs. Pre-Recession
1Source: The American Affluence Research Center
EXECUTIVE INSIGHTS
L E K . C O MPage 2 L.E.K. Consulting Executive Insights Vol. XII, Issue 7
Importantly, affluent consumers are translating optimism into
purchasing power. According to the L.E.K. research, households
earning more than $150,000 annually are the only demographic
claiming to spend more today than before the recession (Figure
4). By stark contrast, the general population has decreased its
spending by more than four percent. The affluents are also the
only group explicitly planning increases in retail spending
going forward.
Figure 2
The Affluent Drive Consumer Megatrends
Retailers also need to understand the deeper motivations
of customers, and the L.E.K. Consumer Sentiment Survey
identified individuals who describe themselves as “passionate”
about specific consumer trends (via a series of highly targeted
questions about their shopping habits). Of note, the percent-
age of high-income individuals who align themselves with these
trends is typically more than seven percent higher than the
general population (Figure 5). In addition, it appears that
support for key consumer megatrends is anchored in this group;
their improving attitudes have major ramifications for Teen
Independence, Online Shopping and Natural Products.
100
90
80
70
60
50
40
30
20
10
0
31
14
20
12
8
14
General population
25
13
19
14
10
19
$100K-$150K >$150K $300K-$750K
19
8
19
16
18
21
19
26
17
18
11
9
20
18
10
21
19
13
$750K-$1.5M
17
14
5
21
22
21
>$1.5M
In 24 months
In 18 months
In 12 months
In 6 months
Already Has
Never Impacted
~13 months ~11 months ~9 months ~12 months ~11 months ~8 months
Household Income Net Worth*
Overall Average
Note: *Net worth calculated as value of home plus value of other savings and investments
Percent of respondents
Source: L.E.K. Consumer Sentiment Survey
140
120
100
80
60
40
20
0
U.S. Sentiment on Personal Finances by Household Income, Today vs. Pre-Recession and the S&P 500 Index
Source: L.E.K. Consumer Sentiment Survey
Net Percent of Respondents
October2008
April2009
October2009
April2010
S&P 500 Index (Oct ‘08 = 100)
Better 40
30
20
10
0
-10
-20
-30
-40
-50
Worse -60
>$150K
S&P 500
Percent Change in Overall Spending by Household Income
Source: L.E.K. Consumer Sentiment Survey
Percent Change in Spend
Today vs. pre-recession
Post-recession vs.today
5
4
3
2
1
0
-1
-2
-3
-4
-5
>$200K
>$150K-$200K
General population
Consumer Trends GeneralPopulation
Annual HouseholdIncome>$150,000
PercentDifference
Teen Independence:Increased influence and purchasing power among teens
35%* 43% 8%
Time Savings:Products that address hectic lifestyles
23% 31% 8%
“Green” Products:Environmentally friendly items
21% 27% 6%
Online Shopping:Enhanced purchasing via the Web
19% 26% 7%
Natural Products: Organic and related food items
17% 24% 7%
Figure 5
“Passionate” Followers of Consumer Trends
Source: L.E.K. Consumer Sentiment Survey
*Agreement among respondents with teenagers in their family
When Will Your Financial Situation Recover?
100
90
80
70
60
50
40
30
20
10
0
31
14
20
12
8
14
General population
25
13
19
14
10
19
$100K-$150K >$150K $300K-$750K
19
8
19
16
18
21
19
26
17
18
11
9
20
18
10
21
19
13
$750K-$1.5M
17
14
5
21
22
21
>$1.5M
In 24 months
In 18 months
In 12 months
In 6 months
Already Has
Never Impacted
~13 months ~11 months ~9 months ~12 months ~11 months ~8 months
Household Income Net Worth*
Overall Average
Note: *Net worth calculated as value of home plus value of other savings and investments
Percent of respondents
Source: L.E.K. Consumer Sentiment Survey
140
120
100
80
60
40
20
0
U.S. Sentiment on Personal Finances by Household Income, Today vs. Pre-Recession and the S&P 500 Index
Source: L.E.K. Consumer Sentiment Survey
Net Percent of Respondents
October2008
April2009
October2009
April2010
S&P 500 Index (Oct ‘08 = 100)
Better 40
30
20
10
0
-10
-20
-30
-40
-50
Worse -60
>$150K
S&P 500
Percent Change in Overall Spending by Household Income
Source: L.E.K. Consumer Sentiment Survey
Percent Change in Spend
Today vs. pre-recession
Post-recession vs.today
5
4
3
2
1
0
-1
-2
-3
-4
-5
>$200K
>$150K-$200K
General population
Consumer Trends GeneralPopulation
Annual HouseholdIncome>$150,000
PercentDifference
Teen Independence:Increased influence and purchasing power among teens
35%* 43% 8%
Time Savings:Products that address hectic lifestyles
23% 31% 8%
“Green” Products:Environmentally friendly items
21% 27% 6%
Online Shopping:Enhanced purchasing via the Web
19% 26% 7%
Natural Products: Organic and related food items
17% 24% 7%
Figure 5
“Passionate” Followers of Consumer Trends
Source: L.E.K. Consumer Sentiment Survey
*Agreement among respondents with teenagers in their family
When Will Your Financial Situation Recover?
100
90
80
70
60
50
40
30
20
10
0
31
14
20
12
8
14
General population
25
13
19
14
10
19
$100K-$150K >$150K $300K-$750K
19
8
19
16
18
21
19
26
17
18
11
9
20
18
10
21
19
13
$750K-$1.5M
17
14
5
21
22
21
>$1.5M
In 24 months
In 18 months
In 12 months
In 6 months
Already Has
Never Impacted
~13 months ~11 months ~9 months ~12 months ~11 months ~8 months
Household Income Net Worth*
Overall Average
Note: *Net worth calculated as value of home plus value of other savings and investments
Percent of respondents
Source: L.E.K. Consumer Sentiment Survey
140
120
100
80
60
40
20
0
U.S. Sentiment on Personal Finances by Household Income, Today vs. Pre-Recession and the S&P 500 Index
Source: L.E.K. Consumer Sentiment Survey
Net Percent of Respondents
October2008
April2009
October2009
April2010
S&P 500 Index (Oct ‘08 = 100)
Better 40
30
20
10
0
-10
-20
-30
-40
-50
Worse -60
>$150K
S&P 500
Percent Change in Overall Spending by Household Income
Source: L.E.K. Consumer Sentiment Survey
Percent Change in Spend
Today vs. pre-recession
Post-recession vs.today
5
4
3
2
1
0
-1
-2
-3
-4
-5
>$200K
>$150K-$200K
General population
Consumer Trends GeneralPopulation
Annual HouseholdIncome>$150,000
PercentDifference
Teen Independence:Increased influence and purchasing power among teens
35%* 43% 8%
Time Savings:Products that address hectic lifestyles
23% 31% 8%
“Green” Products:Environmentally friendly items
21% 27% 6%
Online Shopping:Enhanced purchasing via the Web
19% 26% 7%
Natural Products: Organic and related food items
17% 24% 7%
Figure 5
“Passionate” Followers of Consumer Trends
Source: L.E.K. Consumer Sentiment Survey
*Agreement among respondents with teenagers in their family
When Will Your Financial Situation Recover?
Figure 3 Figure 4
EXECUTIVE INSIGHTS
L E K . C O MPage 3 L.E.K. Consulting Executive Insights Vol. XII, Issue 7
Figure 5
100
90
80
70
60
50
40
30
20
10
0
31
14
20
12
8
14
General population
25
13
19
14
10
19
$100K-$150K >$150K $300K-$750K
19
8
19
16
18
21
19
26
17
18
11
9
20
18
10
21
19
13
$750K-$1.5M
17
14
5
21
22
21
>$1.5M
In 24 months
In 18 months
In 12 months
In 6 months
Already Has
Never Impacted
~13 months ~11 months ~9 months ~12 months ~11 months ~8 months
Household Income Net Worth*
Overall Average
Note: *Net worth calculated as value of home plus value of other savings and investments
Percent of respondents
Source: L.E.K. Consumer Sentiment Survey
140
120
100
80
60
40
20
0
U.S. Sentiment on Personal Finances by Household Income, Today vs. Pre-Recession and the S&P 500 Index
Source: L.E.K. Consumer Sentiment Survey
Net Percent of Respondents
October2008
April2009
October2009
April2010
S&P 500 Index (Oct ‘08 = 100)
Better 40
30
20
10
0
-10
-20
-30
-40
-50
Worse -60
>$150K
S&P 500
Percent Change in Overall Spending by Household Income
Source: L.E.K. Consumer Sentiment Survey
Percent Change in Spend
Today vs. pre-recession
Post-recession vs.today
5
4
3
2
1
0
-1
-2
-3
-4
-5
>$200K
>$150K-$200K
General population
Consumer Trends GeneralPopulation
Annual HouseholdIncome>$150,000
PercentDifference
Teen Independence:Increased influence and purchasing power among teens
35%* 43% 8%
Time Savings:Products that address hectic lifestyles
23% 31% 8%
“Green” Products:Environmentally friendly items
21% 27% 6%
Online Shopping:Enhanced purchasing via the Web
19% 26% 7%
Natural Products: Organic and related food items
17% 24% 7%
Figure 5
“Passionate” Followers of Consumer Trends
Source: L.E.K. Consumer Sentiment Survey
*Agreement among respondents with teenagers in their family
When Will Your Financial Situation Recover?
Implications of Renewed Affluent Spending Power
The attitudes of haves and have-nots generally converged
during the economic crisis, but now have become markedly
unhinged. While the separation of affluent consumers from the
pack is not new, it raises several interesting implications regarding
this group’s disproportionately large impact on the economy.
Despite social equity questions related to this separation, the
general population benefits from high earners returning to their
carefree spending ways, given their potential to strengthen the
frail economy. However, until improvements in consumer confi-
dence are broad and robust, the current engine of retail recovery
is exposed to the psychology of affluent consumers, meaning
that stock market fluctuations have amplified feedback risks.
Successful navigation through today’s business climate requires
retailers to gain a deep understanding of their customers,
segment by segment. In particular, insights into a company’s
most affluent consumers can have a profound impact on
business strategy and provide a tangible set of marketing steps
amid hazy market conditions.
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and analytical rigor to help clients solve their most critical business problems. Founded more than 25 years ago, L.E.K. employs more than 900 professionals in 20 offices across Europe, the Americas and Asia-Pacific. L.E.K. advises and supports global companies that are leaders in their industries – including the largest private and public sector organizations, private equity firms and emerging entrepreneurial businesses. L.E.K. helps business leaders consistently make better decisions, deliver improved business performance and create greater shareholder returns. For more information, go to www.lek.com.
For further information contact:
Los Angeles 1100 Glendon Avenue 21st Floor Los Angeles, CA 90024 Telephone: 310.209.9800 Facsimile: 310.209.9125
Boston 28 State Street 16th Floor Boston, MA 02109 Telephone: 617.951.9500 Facsimile: 617.951.9392
Chicago One North Wacker Drive 39th Floor Chicago, IL 60606 Telephone: 312.913.6400 Facsimile: 312.782.4583
New York 650 Fifth Avenue 25th Floor New York, NY 10019 Telephone: 212.582.2499 Facsimile: 212.582.8505
San Francisco 100 Pine Street Suite 2000 San Francisco, CA 94111 Telephone: 415.676.5500 Facsimile: 415.627.9071
International Offices:
Auckland
Bangkok
Beijing
London
Melbourne
Milan
Mumbai
Munich
New Delhi
Paris
Shanghai
Singapore
Sydney
Tokyo
Wroclaw