New luxury caters to the middle class

By Manav Tanneeru
CNN

Adjust font size:

(CNN) -- Once the sole provenance of the elite, luxury goods are now aimed at a much bigger market -- the middle class. Brands such as Starbucks, Coach, Victoria's Secret and Evian are redefining the traditional concepts of luxury, observers say.

"If you went back to the 1930s, what you would see is that luxury goods would be used by aristocrats. It was very small market ... less than 1 percent of the population," said Michael J. Silverstein, co-author of "Trading Up: Why Consumers Want New Luxury Goods and How Companies Create Them."

"What you have today is the democratization of luxury. It's about the middle class," he said. Silverstein and co-author Neil Fiske call this the "new luxury."

New luxury products are perceived as high-quality and stylish, without being prohibitively expensive.

The authors contrast this with "old luxury" items like Rolls Royce which are luxurious, to be sure, but also financially unattainable for the great majority of people. New luxury is BMW, which is more accessible than Rolls Royce, but not as commonplace as Ford.

New luxury customers are willing to spend an amount of money disproportionate to their income for a product they consider highly important, said Silverstein who is also a senior vice president at the Boston Consulting Group.

For some people, luxury is a daily $3.50 vanilla latte from their local barista. Others spend on fancy home renovations, nice lingerie, high-end cars, monthly spa visits or expensive weekly dinners. (Gallery: Most expensive restaurants)

"I try to live frugally, but once in a while, I splurge," said Obinna Ndubuizu, a graduate student at Case Western University in Cleveland, Ohio. In addition to spending money on sporting events, he goes on several trips a year to "get away from home," he said.

Luxury products and services can help consumers manage stress and give them a feeling of happiness and accomplishment, according to Silverstein. (Gallery: Pricey pastimes)

Buying the story

In addition to higher standards, a luxury product comes with a narrative of exclusivity, according to James Twitchell, author of "Living it Up: America's Love Affair with Luxury."

"There is no such thing as a luxury good. There is no such thing as a luxury object. It's just an object with a luxury story attached to it," he said.

When consumers buy the luxury good, they are essentially buying the story, which satisfies the emotional need, he said.

"Even if you are by yourself and no one sees it -- for example, no one is looking at you when you are wearing cashmere socks -- there is a sense of satisfaction," he said.

Bob Boulogne, the chief operating officer for Rosewood Hotels and Resorts, said the "trading up" trend has played a part in the company's growth over the past few years.

The hotel chain, which caters to the top 1 percent of the population, has seen demand grow 20 percent since 2002, according to Boulogne.

"Customers want to have a once in a lifetime experience like a honeymoon; or it could simply be a person who wants to splurge once a year for an unbelievable vacation," he said. (More exploring far from the tourist-filled crowds)

The luxury market will likely exceed $600 billion this year, up from about $350 billion in early years of this decade, Silverstein said. He estimates the number will grow to $1 trillion by the end of the decade.

As everyday goods have grown cheaper over the last 30 years and the middle class has become more affluent, their disposable income has risen, Silverstein said. They have enjoyed a doubling of real income over that period, he said.

Currently, 48 million American households make between $50,000 and $100,000 a year, and they control 66 percent of total consumer expenditures, according to Silverstein.

There are also more millionaires and people of high net worth in the world than there were 20 years ago, said Milton Pedraza, CEO of The Luxury Institute, a ratings and research company that works with luxury companies.

However, statistics also say Americans are not saving and using credit heavily, suggesting they may be spending beyond their means.

Between 'mass and class'

Meanwhile, luxury companies are "trading down" and marketing products more affordable to the middle class.

The result has been the creation of a new retail class, represented by companies like Coach, Williams-Sonoma, Whole Foods Market and Victoria's Secret, that lies between "mass and class," Silverstein said.

The phenomenon has raised questions among some observers about whether the term "luxury" is being diluted. "It may very well be the end of luxury; because if you democratize it too much, it soon loses whatever cachet it has," Twitchell said.

Companies that have tried "to be all things to all people and traded down" have suffered brand erosion, according to the Luxury Institute's Pedraza.

Rosewood's Boulogne said the broadening of luxury could confuse customers. In the larger view "it's all a very positive development because consumers are getting better goods; but certain brands -- they need to distinguish themselves," he said.

Twitchell said the democratization of luxury was inevitable. "What comes into culture almost always as luxury, if it has allure and appeal, soon gets reconfigured into necessity," he said.

Indoor plumbing was considered a luxury at the end of the 19th century, but is now considered a measurement of whether someone is living in poverty, he said.

Twitchell visited the great shopping streets of American culture across the country and concluded the trend has a healthy effect on society because brands have the ability to transcend class and cultural divides.

"Where America comes together -- red and blue state, evangelical Christians and the non-believer -- is in this world of consumption," he said.

Tools:
Save |
Print |
E-mail |
Most Popular |

Next story in U.S.

U.S.

What are E-mail Alerts? | Manage Alerts | Create Your Own

Get up-to-the minute news from CNN

CNN.com gives you the latest stories and video from the around the world, with in-depth coverage of U.S. news, politics, entertainment, health, crime, tech and more.