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Luxury Lines Loom Large

A new report from The Boston Consulting Group (BCG) might help explain why the sales pace of value-priced appliances is lagging that of super-premium products.

The report, “The New Luxury: Why the Middle Market American Consumer Wants Premium Goods and How Companies Create Them,” states that despite the mixed economy, consumers are trading up to ultra-quality majaps and other goods due to changing demographics, lifestyles and stress levels.

“We’re facing one of the greatest shifts in consumer buying habits and taste since the 1950s,” said co-author and BCG partner Michael Silverstein, who argues that middle class consumers are willingly paying premiums of up to 10 times conventional price levels for brands associated with the rich and elite. Shoppers are flocking to high quality, high-performance, emotionally satisfying lines like Viking and Sub-Zero, he says, to help assuage the extraordinary stresses of modern life.

Other factors influencing the move to luxury goods include:

  • Increased Affluence. Some 25 million U.S. households now earn more than $75,000 annually, and control 77 percent of the nation’s discretionary income.
  • Rising Home Values. Real estate gains have provided the equity necessary to finance significant improvements. According to BCG, the average “new luxury” remodeled kitchen costs more than $57,000, compared to $9,000 for the typical 1950s buffet-style kitchen (in 2002 dollars).
  • Broader Distribution. Consumers have much more access and exposure to luxury goods in nearly all retail settings. Approximately 25 percent of the merchandise mix at Costco, for example, is comprised of premium products like Prada, Waterford Crystal and Raymond Weil watches.

For manufacturers, the consequences of this trend are profound. The old, accepted notion that the mass market is won on low price is no longer a given, the report says, and brands that are aimed squarely at the middle of the market with average products and pricing are at the greatest risk.

“We sincerely believe that many brand giants are facing death in the middle,” Silverstein observed.