Where do opportunities for high-value consumption lie?
The USA is the single most important market for high-value and luxury consumption, ranking first in 2018 and 2030 in Euromonitor International´s Wealth Index. The country’s wealthy and affluent population will be the world’s largest in absolute and proportional terms in 2030. Its richest households are big spenders. The USA ranks 1st in 2018 in terms of decile 10’s share in total consumer expenditure on inconspicuous consumption categories, a position it is set to retain in 2030.
The era of the Middle-Class Retreat has global economic uncertainty, weak income growth, and rising inequalities preventing the expansion of the middle class and undermining its role as the driver of consumer markets. It is more important than ever for global businesses to capture high-value opportunities.
High Net Worth Individuals (HNWIs), ultra HNWIs and affluent consumers are important target groups for providers of luxury goods and services. In order to boost profitability and grow in the face of the Middle-Class Retreat, businesses who traditionally target middle classes now need to also attract wealthier consumers.
Take Samsung for example. In September 2016 it acquired Dacor, a leading American manufacturer of ultra-premium large kitchen appliances. In 2015 Samsung had already shown its intention to tap into the premium segment with the launch of its Chef Collection series in an effort to boost profitability in a highly competitive but low-margin industry.
The acquisition of Dacor demonstrates Samsung’s strategic vision. While the USA is already Samsung’s second largest market after India, this acquisition has helped the company leapfrog into the country’s more profitable luxury segment. It has captured strong demand from US wealthy and affluent households, whose number and purchasing power are set to rise.
Euromonitor´s Wealth Index further reveals that despite its dominant position on the index ranking for both 2018 and 2030, the USA is not a market without weaknesses. In 2018, the country ranked 19th out of 84 countries in terms of wealth per adult for the ultra HNW, HNW and affluent segments. Although it will still lead in 2030 in terms of richest households’ share in inconspicuous consumption, real growth in decile 10’s spending is slowing in the period through to 2030.
A global wealth index can help businesses evaluate the present and future potential of high-value and luxury consumption across global markets. Insights such as this can help businesses formulate their long-term strategy.
To identify the high-value consumption potential in a country, the following three pillars were used by Euromonitor International´s Wealth Index:
Wealthy population: The size, share of total population and average wealth of the wealthy population helps businesses gauge potential consumer numbers and their purchasing power.
Consumption: The share of decile 10’s expenditure on “inconspicuous consumption” allows businesses to assess whether the richest households in a country actually spend on categories that matter to businesses seeking high-end, high-value opportunities. These categories include health goods and medical services; transport, including luxury cars and transport services; leisure and recreation; education; hotels and catering; and miscellaneous goods and services, jewellery, watches, financial services and personal protection. A country with a large wealthy population who does not spend in the country does not really have high-value potential and opportunities.
Assets: Measuring the proportion of homeowners without mortgages, savings, insurance and pension funding per adult are measures of both financial and non-financial wealth. This can be tapped into for high-value consumption and therefore are also indicative of potential.
To learn more, listen to our webinar on-demand: The Global Wealth Index and How to Capitalise on High-Value Consumers.