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Consumer Spending: The Paradox of Resilient Luxury, Excerpt from The Agency Red Paper 2024 Wealth Report
CONSUMER SPENDING: THE PARADOX OF RESILIENT LUXURY
BY PAUL JEBARA
How are luxury consumers actually spending their money? And why? From high-end timepieces to next-level home amenities, we interpret the motivations and meaning behind the behaviors of today’s high-net-worth consumers.
In today’s economic maelstrom where unpredictability reigns supreme, the ultra-high-net-worth (UHNW) elite stand as the unshakable captains of industry, deftly navigating through the tempest with a blend of resilience and foresight.
In a striking display of economic resilience, the latest Altrata’s World Ultra Wealth Report 2023 unveils a paradox: a dip in the number of UHNW individuals, yet an unabated zeal for luxury. With fortunes exceeding $30 million, the cohort has shrunk by 5.4 percent, marking the most significant decline since 2015. Notwithstanding the dip, the group’s collective assets remain a formidable $45 trillion, averaging an impressive $51 million per individual, as per Wealth-X data.
Ultra-High-Net-Worth Population
The story gets even more colorful regionally: North America, traditionally the bastion of ultrawealth, saw a 4 percent reduction in its UHNW population in 2022, the most substantial in a decade. Europe, buffeted by inflation and geopolitical strife, experienced a 7.1 percent drop. Asia faced the sharpest decline, with a 10.9 percent fall in its ultrawealthy ranks. In contrast, India’s booming economy bucked the trend with a 3 percent increase, while the Middle East, Latin America, and the Caribbean saw notable growth in both UHNW numbers and net worth.
A barometer of UHNW behavior, the high-stakes, high-aspiration sphere of asset ownership is increasingly diverse and dynamic. Executives, the largest
group within this echelon, are at the forefront of owning assets like private jets, blending business with luxury. Entrepreneurs, though fewer, make their mark with yachts and esteemed art collections. Inheritors, with a more subdued approach, show a deep connection to art, reflecting their heritage and cultural values.
Bain & Company’s Luxury Goods Worldwide Market Study, produced in collaboration with the Altagamma Foundation, forecasts a bullish future for the luxury market. It’s projected to hit a staggering $1.6 trillion in 2023, an 8 to 10 percent increase from the previous year. The personal luxury goods segment, in particular, is expected to reach nearly $400 billion by year-end, surpassing 2022 figures by 4 percent.
Global Personal Luxury Goods Market
The luxury paradigm is undergoing a profound transformation. Today’s affluent are seeking experiences that resonate on a personal level, moving beyond mere opulence.
Bain’s Claudia D’Arpizio encapsulates this shift as a blend of “resilience, relevance, and renewal”—the new bedrock of a value-centric luxury ethos enriched by the experiential, such as bespoke travel, personalized wellness, and access to exclusive events.
In this new era, the convergence of technology and luxury is pivotal. Blockchain, artificial intelligence, and digital platforms are becoming integral to the luxury narrative. The rise of digital art, virtual experiences, and cryptocurrencies marks a new chapter where technology and luxury intertwine, offering unparalleled experiences. This digital evolution is expected to reshape the luxury market by 2030, with online and monobrand channels dominating the market share.
Projections suggest a rise to 528,100 UHNW individuals and $60.3 trillion in total assets over the next five years. Asia is poised to lead this growth, while North America and Europe maintain significant stakes. In a world where change is the only
constant, the ultra-wealthy are not just surviving the storm; they are skillfully charting their course, leveraging global dynamics to amass even greater wealth and influence.
Key Luxury Spotlight: Timepieces with a Tale
In the high-stakes world of luxury investments, high-end timepieces are capturing the imagination of young, affluent collectors like never before. The year 2022 marked a noteworthy milestone, with these exquisite wristwatches ascending to third place in the Knight Frank Luxury Investment Index (KFLII), boasting an 18 percent increase in value. Picture the electric atmosphere in premier auction houses, where the watch market experienced a 33 percent boom, raking in an extraordinary $575 million in sales. Among them, 40 watches effortlessly sailed past the million-dollar mark, surpassing their previous year’s show.
The ultra-wealthy are broadening their investment horizons, incorporating a mix of art, classic cars, and high-end watches, which now constitute
about 3 percent of their total assets. While art continues to be a top choice, with nearly 60 percent of UHNWIs planning purchases in 2023, watches are swiftly gaining traction, attracting a 46 percent following. Amid economic fluctuations, these luxury items have demonstrated remarkable resilience, with art, luxury cars, and watches appreciating in value by 29 percent, 25 percent, and 18 percent, respectively.
Consider the Patek Philippe “Gobbi Milano,” a showstopper at a 2022 Sotheby’s auction. This masterpiece sparked a heated bidding war, ultimately fetching a record-breaking $7.7 million. These timepieces are not just sophisticated accessories; they embody a compelling mix of historical significance and investment potential. Young collectors, in particular, are gravitating toward vintage and historically important watches, eschewing the fleeting allure of trendy “hype watches.”
But the appeal of these watches extends beyond their rich histories. The craftsmanship itself is a major attraction, symbolizing a legacy of exclusivity and mastery. Young collectors are on the hunt for personalized or limited edition pieces, seeking more than a mere timekeeper— they’re in pursuit of a story, a tangible piece of art. Digital platforms, online forums, and social media have fostered a vast, interconnected community of watch enthusiasts, experts, and vendors. As mono-brand environments emerge as the new epicenters of luxury shopping, purchasing a watch transcends the transactional, becoming an immersive experience rich in tradition, yet imbued with contemporary retail sophistication.
Electric Elegance: The Future of Luxury Cars
In the dynamic world of luxury automobiles, a new breed of horsepower is taking the lead: electric vehicles (EVs), silently yet potently transforming the high-end motoring scene. The Business Research Company’s Luxury Electric Vehicles Global Market Report 2023 illuminates this electrifying landscape. The luxury EV sector, buzzing at $149.13 billion in 2022, is accelerating to an impressive $178 billion in 2023. This momentum is far from fleeting, with projections indicating a surge to $345.51 billion by 2027, propelled by a compound annual growth rate of 18 percent.
These EVs are redefining luxury, merging environmental responsibility with the exhilaration of high performance and opulence.
They are reshaping consumer perceptions and driving industry innovation, transcending their role as mere ecofriendly alternatives to become pioneers in automotive excellence. According to McKinsey’s insights, the luxury vehicle market is witnessing a transformation.
By 2030, electric engines are expected to power 50 to 60 percent of luxury vehicles. This evolution encompasses not only battery electric vehicles (BEVs) but also fuel-cell electric vehicles (FCEVs), broadening the spectrum of high-end automotive choices. Legacy automakers such as Jaguar, Audi, and BMW are enthusiastically carving their territory within the luxury EV market and intensifying the competition. This influx of established brands expands the horizons for ultra-high-net-worth (UHNW) consumers, offering a more decadent array of sophisticated, ecoconscious vehicles.
The popularity of luxury EVs is driven by more than technological advancements in comfort and safety. It resonates deeply with a younger, environmentally aware demographic, reflecting a growing global consciousness about sustainable living. Regulatory initiatives, like those from the United States Environmental Protection Agency aimed at flattening out emissions, are catalyzing the adoption of cleaner automotive technologies. However, it is in the Asia Pacific region, particularly China, where the luxury EV market is truly accelerating. With a burgeoning middle class, heightened environmental awareness, and robust government support, this region is leading the charge. Homegrown brands like NIO and LI are at the forefront of this movement, showcasing innovative designs and technologies that cater to the luxury market’s evolving preferences.
Wine Waves: A Collector’s New Love
In the sophisticated world of investment portfolios, fine wine has gracefully evolved from a niche passion asset to a fundamental pillar. WineCap’s research underscores this repositioning, revealing that 96 percent of key financial stakeholders anticipate a stark uptick in fine wine demand.
At the heart of this growing interest is the Liv-ex Fine Wine 100 Index, a pivotal benchmark in the industry that meticulously tracks the price movements of 100 of the most sought-after wines. This index serves as a critical financial market indicator for the fine wine sector, offering UHNW investors detailed insights into market trends and fluctuations. Notably, the index has underscored the resilience and stability of fine wine investments, particularly in contrast to mainstream asset classes.
The broader Liv-ex 1000 index, showcasing a remarkable 41.2 percent growth over the past five years, significantly outpaced the FTSE 100’s performance, highlighting fine wine’s potential for wealth preservation and growth.
Additionally, the environmental, social, and governance (ESG) credentials of fine wine are increasingly gaining prominence. The sustainable practices in
vineyards, the omnipresence of organic and biodynamic production, and the environmental benefits of wine cultivation align with the growing ESG awareness among affluent investors. Vineyards, acting as carbon sinks, absorb a substantial amount of carbon annually. The move toward organic wine production supports vital pollinators, and the reduction of single-use plastics in packaging reflects an environmental consciousness that resonates with investors.
On the home front, buyers are showing interest in properties that encompass private vineyards, which presents the owners with an opportunity to cultivate a familial wine legacy and expand their personal collection. Possessing a privately owned vineyard and its product has increasingly become an emblem of success and a sought-after home feature for the UHNW.
Despite global challenges such as the pandemic and geopolitical unrest, fine wine has not only sustained but thrived. Its low correlation with traditional assets further solidifies its role as an effective portfolio diversifier.
Growing buzz around new wine regions is also reshaping the global wine landscape. The advent of new distribution channels has simplified and economized the process for wine enthusiasts to explore and purchase diverse wines online, circumventing traditional, often expensive routes like brokers and auctions. The rise of these emerging wine regions signifies a potential dethroning of viticulture strongholds traditionally perceived as superior. Beyond the classic terroirs of Bordeaux and Burgundy, where soaring prices and tariffs have expanded horizons, these new regions offer a refreshing variety at more accessible price points.
Europe’s wine map is undergoing a metamorphosis, from Scandinavian vineyards benefiting from extended summers to Poland’s burgeoning varieties and the Netherlands’ winemaking revival. England’s climate change is fueling a sparkling wine revolution, while Belgium is exploring complex Chardonnays, and Georgia is modernizing its ancient wine traditions with a range of indigenous grapes. In North America, wine aficionados are venturing beyond Napa Valley, uncovering hidden treasures from Oregon’s verdant valleys to New York’s Finger Lakes. Canada and Mexico are also making their mark, each with unique varietals. In Asia, the wine scene is expanding beyond consumption to production, with Japan focusing on organic Koshu, China rising with Ningxia’s acclaimed Cabernet Sauvignon and India offering wines that complement its rich culinary traditions.
SOURCES
Altrata’s World Ultra Wealth Report 2023: This report provides insights into the ultra-highnet-worth (UHNW) population, their assets, and their behaviors.
Wealth-X data: Used in conjunction with the World Ultra Wealth Report to provide a detailed analysis of the UHNW population.
Bain & Company’s Luxury Goods Worldwide Market Study Spring 2023: Produced in collaboration with the Altagamma Foundation, this report forecasts the growth and trends in the luxury market.
Knight Frank Luxury Investment Index (KFLII): This index tracks the value of luxury investments, including high-end watches.
WineCap’s research: Highlights trends in fine wine demand and investment.
Liv-ex Fine Wine 100 Index: A leading financial market barometer for the fine wine sector. The Business Research Company’s Luxury Electric Vehicles Global Market Report 2023: Provides data on the market size and growth of luxury electric vehicles.
McKinsey Insights: Offers insights into the luxury vehicle market and the shift toward electric vehicles.
Institute for Policy Studies: Cited for its report on the growth of the private jet sector.
WingX: A premier authority in aviation market analytics, providing data on private aviation trends.
Arts Economics and UBS study: Offers insights into the art market, focusing on private collections and the rise of digital assets like NFTs.
