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Results of the Spring 2011 American Affluence Research Center Survey

May. 16th, 2011 | Comments 0 | Make a Comment   
Last year I wrote two articles about the Fall 2010 Survey research results and interpretation provided by the American Affluence Research Center, Ron Kurtz, President. The results of the Fall 2010 survey seemed to indicate some hope for the economic future, and for future affluent spending patterns.

Now, the results of the Spring 2011 American Affluence Research Center Survey appear even more hopeful. This report is based on the responses from 405 men and women who promptly responded and met the minimum net worth requirement of $800,000. Their households have an average annual income of $333,000, an average net worth of $3.1 million, average investable assets of $1.8 million, and an average primary residence value of $1.1 million.

The survey respondents represented 28 states and the District of Columbia. Eighty-eight percent are married. The average age is 57. Fifty-six percent are males and forty-four percent are females. This research survey is the 19th in a continuing series of twice-yearly surveys that focus on the 11.4 million households that represent the wealthiest 10 percent of all U.S. households, as determined by The Federal Reserve Board, based on net worth.

These households account for about half of all consumer spending and a third of gross domestic product.
These surveys measure and track how luxury and affluent consumers assess current business conditions and their 12-month outlook for the economy, the stock market and their personal household earnings. The surveys also monitor the anticipated changes in spending for a variety of different products and services, changes in expected rates of saving, and primary investment objectives. In addition, each survey contains special questions exploring new topics.

The survey results are based on self-administered questionnaires mailed to 4,500 households that, based on their income and ownership of certain assets, were expected to meet the minimum net worth requirement of $800,000. The maximum margin of error of this survey, at 95 percent confidence, is five percentage points. Index values shown in the report can range from 0 (negative) to 200 (positive), with an index of 100 being a neutral point and where little or no change is expected.

Here are the major findings:
In contrast to Fall 2010, the affluent, who account for about half of all consumer spending, report a better outlook for the economy and their personal spending plans. Spending plans for all 17 products and services tracked by these surveys are much stronger than in the Fall 2010 survey. There is also improvement in the plans to make major expenditures such as for a new auto, a cruise and a vacation home.

Discounts by prestigious brands during the past two or three years of a weak economy have apparently been accepted by affluent and luxury consumers without diluting the stature of the brands. About 60 percent of the affluent in the Spring 2011 survey say the discounts did not affect their opinion of the brands, while a quarter said the discounts motivated them to make purchases they may not have otherwise made. Only 5 percent said the discounts lowered the image/prestige of the brand.

This data suggests that the affluent recognize there are certain situations where discounting by luxury brands is reasonable and understandable, if not part of an ongoing practice. Less than 20 percent said the discounts raised potentially negative questions about whether quality had been lowered to offset the discounts and whether prior prices and profit margins were fair.

Similar responses were elicited when asked about their opinion of discounts that prestigious brands communicate via the Internet or mobile devices only to past customers or to "members" of special "flash sale" sites. While 65 percent of the affluent own a smart phone or a tablet (or both), the remainder have regular access to a computer. Half of the affluent say they do not participate in any type of social media.

Among those that do participate in social media, only a quarter say they use it to receive regular communication about product and related information from a manufacturer or retailer. In other words, only 12.5 percent of the affluent say they are using social media to receive regular product information from a manufacturer or retailer.

This relatively low number (12.5 percent of the affluent) may be surprising given all the amazing statistics being circulated by various research and traffic tracking companies about the volume and growth of e-commerce, the ubiquitous mobile devices, and the urgent emphasis to invest time and money into various forms of mobile apps and promotional activities online through proprietary sites and social media.

It is important to understand who will actually be reached through mobile devices and social media (and whether the ROI is reasonable), what technology is needed to be compatible with the various different mobile and other receiving devices, and who might be missed if communications are limited exclusively to these channels.

Based on a different business model and with 12 years in business, Zappos has established a much stronger position among affluent and luxury consumers than any of the 11 "flash sale" sites listed in the survey. Among the flash sale sites, Gilt and RueLaLa have
established leading positions.

Over half of affluent and luxury consumers are aware of Zappos while none of the 11 listed "flash sale" sites have more than 10 percent awareness. A third of the affluent have visited Zappos in the past 90 days while 5 percent or less have visited any of the "flash sale" sites during that time. A third of the affluent and luxury consumers have ever made a purchase at Zappos while less than 4 percent have ever made a purchase at any of the individual flash sale sites.

These results are not totally surprising as the affluent are typically careful spenders whose favorite stores include Target, Costco and Home Depot. Also not surprising, the results vary substantially within age, gender and wealth categories. What may be surprising is the fact that over 40 percent of affluent and luxury consumers are not aware of Zappos or any of the flash sale sites.

About 10 percent of the affluent say they will seriously consider acquiring access to a vacation home during the next 12 months. Plans to make an acquisition increase as age declines, income increases, and net worth increases. About 2.9 percent are considering two types of vacation home acquisition. Wholly-owned homes are the most favored type of vacation home access. Wholly-owned homes used primarily on a seasonal basis are more popular than those used frequently throughout the year.

In a recent interview with Ron Kurtz, President of the American Affluence Research Group, he said, "The affluent market, as defined by the top 10 percent of U.S. households, still spend carefully. Their favorite stores are still CostCo, Target and Home Depot. They are not conspicuous or ostentatious spenders. The recession may not have fiscally affected them, but in some deeper sense, they have been affected. But, there is reason to be hopeful."

Mr. Kurtz recently presented his findings at the GNEX Shared Ownership Conference on May 11, where he was a keynote speaker. "The spending attitudes of the affluent seem to be improving," he said.

"What we see is a continued conservatism, but tinged with optimism now. Unlike in other years, and taken as a whole, our research shows the affluent majority are not taking action to reduce or defer major expenditures now. They are interested in purchasing vacation homes and are again interested in travel. Things are looking better."
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