4 Ways to Succeed in Home Improvement as Affluent Spending Slows

  • Categories:

    Industry Trends, Marketing Insights

  • Date:

    November 5, 2019

4 Ways to Succeed in Home Improvement as Affluent Spending Slows

Industry Trends Marketing Insights

As talk of a pending recession continues to bubble, some home and building category brands feel more on edge than usual. After all, it can be tough to raise the extension ladders or slap on a fresh coat of paint with dark clouds brewing in the distance. And as affluent spenders in the United States begin to save more, many marketers that target these customers are understandably apprehensive.

Luckily, the home improvement market is built to weather the storm better than most — and if you have a deep understanding of your targets’ evolving mindsets and motivations, you could be headed toward sunny skies.

Here are some of the particulars affecting the current landscape, plus strategies to succeed.

The Situation

Sources forecast that the home industry will not feel the next economic downturn — if it indeed happens — as deeply as others. What’s at work here? For starters, be grateful for positive indicators like continued lower interest rates, giving consumers more flexibility to invest in their home. In its most recent Leading Indicator of Remodeling Activity (LIRA) release, the Joint Center for Housing Studies (JCHS) at Harvard University predicted moderation, rather than significant decline, for the industry in 2020.

On the downside, affluents’ decreased spending in the United States could impact your business if you’re targeting consumers ages 18+ with a household income of at least $125K. Consider:

  • The Savigny Luxury Index, which measures spending on luxury consumer goods, is down more than 4% year to date as of September 2019.
  • We’re seeing luxury homes drop in price to a degree not seen since the last recession (U.S. homes priced at $1.5MM+ fell 5% in Q2) and a decrease in building inventory for both primary and secondary vacation properties in these higher price ranges.
  • Quarterly financial reports from some well-known U.S. luxury brands, such as Ralph Lauren, Tapestry and Prada, reflected declines, and Barneys filed for bankruptcy in August 2019.
  • According to a Conference Board report in August 2019, only 17% of CEOs anticipate an improvement in conditions (down from 19% in the previous quarter).

Clearly, spending by the U.S. wealthy has fallen over the past two years.

But here’s the catch: In that time, affluents’ savings have more than doubled.

To understand the impact of this truth, consider: The affluent market accounts for 20% of U.S. households but contains more than three-quarters of the net worth and makes up two-thirds of all household expenditures. This group is influential on their peers, and their actions can be indicative of future trends for other consumer segments.

Economists describe something called the wealth effect, by which people change and adjust their spending in accordance with their own perception of their wealth. When people feel comfortable with their financial stability and feel wealthy (whether they are or not), they tend to spend more — and when they feel as though their financial situation is less stable (whether it is or not), they tend to spend less.

This phenomenon is thought to be most closely aligned with affluent consumers, whose perceptions can more often fluctuate as their finances are more likely to be tied to the volatility of the stock market (top 10% wealthiest consumers own 80% of the stocks in the U.S.). The impact of the wealth effect today is not a halt of or stark reduction in all affluent spending, but a general slowing down of their spending.

This means that purchase decisions, especially larger ones with bigger price tags, will likely be more drawn out, with each step on the customer’s journey toward purchase lengthening to allow extra time for consideration and caution.

Strategies for Home Improvement Brands

Now, more on the good news: By working to better understand the situation at hand and ultimately your consumers’ evolving mindsets and motivations, you can make adjustments to your strategy to keep things positive.

With affluent consumers pulling back the reins on their spending, which can be predictive of more widespread trends, here are a few things home and building category brands can do:

  1. Understand that a consumer who is feeling less stable is less likely to embark on larger purchases — and shift brand focus accordingly. If you can adjust to better support remodeling versus new builds or create opportunities to focus on the low-to-mid-price product segments in your line versus the super-lux, you may hit on an optimization that could contribute to your own stability for the coming year.
  2. React to the reality that the customer journey of an affluent consumer will lengthen as they exert caution. The shifts in the affluent consumer journey must be understood appropriately. If you’re targeting an affluent consumer, make sure your understanding of their journey is updated and research-based, which will give you the most accurate clarity into their mindset and motivations. If this slowdown is impacting your target consumer, it may be wise to adapt your strategy to place more emphasis on the early stages of their journey to make sure they don’t get bogged down.
  3. Keep tabs on economic, political, market and consumer confidence indicators and shifts. Knowledge is power, and staying informed of the financial health of the market and all the ways it can be impacted can help you know the specifics primed to help you better weather the storm. Now that the early indicators are showing, it’s time to get informed.
  4. Keep the consumer at the center of your strategy. Having your consumer’s wants, needs, realities and motivations at the heart of your strategy, and updating these understandings as their environments change, is the key to remaining relevant to them. By knowing, understanding and preemptively providing consumers with ways to make their days and purchases easier, your brand can more easily weather the storm with them — if and when that storm comes.

Need some help understanding the climate and consumers that drive your business? Contact me to discover more about the data that can inform your next strategy.

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