„THINKING-OUT-OF-THE BOX“ & CHANGING THE PERSPECTIVE
INTRODUCTION
Retailers, entertainment venues and more are eager for the rich to spend $2.5 trillion in savings. Brands are trying to move upmarket to capitalize on this high-end spending surge.
Undaunted by the pandemic, luxury cruise operator Lindblad Expeditions will soon launch two ships, including National Geographic Endurance, above, which will travel to Greenland and Iceland. The company has doubled its Alaska offerings this year and embarked on an ambitious expansion even as the wider travel industry struggles. (Lindblad Expeditions)
Travel agent Dottie Williford’s phone won’t stop buzzing: Her high-end clients in Raleigh, N.C., are eager to explore the world again. She stayed up until midnight recently to book two $20,000 cabins on a luxury cruise to the Bahamas in July. The high-end cruise ship normally sails the Mediterranean but was brought back to the Bahamas as Americans feel safer traveling closer to home. Tickets sold out by 9 a.m.
“People don’t usually spend $20,000 to go to the Bahamas, but my clients are,” Williford said. “The first things to sell out were the top category on the ship.”
The luxury travel boom is one of the clearest signs of a budding spending surge by wealthy Americans that is likely to tilt the balance of the economy even further toward the well-off and may deepen economic disparities already heightened by the global pandemic.
The spending tsunami, though good news for an economy still salving the financial wounds of the coronavirus, underscores how the wealthy can propel economic recoveries. As the rich have amassed more spending power, U.S. recoveries from recessions depend on a jump in their discretionary spending, according to data analyzed by The Washington Post. This represents a direct challenge to President Biden’s stated goals of rebuilding “our economy from the bottom up and the middle out.”
Even as unemployment falls and wages rise in the coming months, businesses across the economy will increasingly cater to the upper class, economists and business executives say. The highest-income Americans, like Williford’s cruise clients, are likely to grow their share of discretionary consumer spending that underpins U.S. economic growth, The Post analysis of federal data shows.
Already, nearly 40 percent of overall consumer spending comes from the top fifth of earners — households thatearn at least $120,000 a year. By contrast, the bottom 20 percent of households account for just 9 percent of allspending, and most of that goes toward universal needs including food, housing and transportation.
This disparity is onlyset to deepen. Thanks to stock market gains, stimulus and a pandemic recessionthat largely bypassed white-collar jobs, Americans were able to savean estimated $2.5 trillion more than usual since the pandemic began, according to the Federal Reserve Bank of New York. Additionally, the wealthiest 10 percent of Americans added more than $8 trillion to their net worth, according to the Federal Reserve, as stocks and home values soared in 2020.
“Higher-income folks are accumulating a lot of savings. They will spend more going forward and that will further create an incentive for companies to cater to higher-income folks even more,” said Raj Chetty, a professor of economics at Harvard University and a leading researcher on inequality.
High-income consumer spending rebounded fully in March and is now up 11 percent above pre-covid levels, according to data from Opportunity Insights, in a potential preview of what is to come. This year, consumer spending could grow at the fastest pace since 1946, according to economists surveyed by Wolters Kluwer’s Blue Chip Economic Indicators.
The fastest-growing spending categories, so far this year, are the ones where the highest-income Americans typically dominate the market. Live entertainment is up 60 percent, amusement parks and related recreation is up 54 percent, membership clubs are up 45 percent and hotels are up 33 percent, according to Bureau of Economic Analysis data through April.
While income and wealth inequality get a lot of attention, spending inequality is what draws the real, visible lines between the haves and have-nots. Consumer spending is almost 70 percent of the economy. WhatAmericans buy determines their standard of living.
The dominance of the top 20 percent helps explain a defining trend of America’s economic recoveries: Growth in spending returns to full steam far faster than jobs. After a strong start to 2021, economic output measured by GDP is expected to soon recover to pre-pandemic levels. At the same time, 7.6 million jobs are still missing and many Americans do not have enough to eat.
The outsize influence of the top 20 percent on the economy can already be seen through the proliferation offive-figure cruises, luxury retailers and vacation homes. Indeed, much of the service sector is increasingly more focused on wooing upper-class spending, because that is where they see the growth opportunity, as income rises at the top.
Retailers like J.Crew and Uniqlo are reaching for much higher top price points for the new items they are introducing this season, compared with similarperiods last year, competingfor the high-end market.
As bookings rise well past pre-pandemic levels, exclusive cruise provider Lindblad Expeditions plans to launch two newly built ships, National Geographic Endurance and National Geographic Resolution, and is snapping up smaller competitors such as the DuVine Cycling + Adventure Co. and U.S. National Park specialty tour operator Off the Beaten Path.
As the economy rebuilds, it may also be reshaped
The growing economic power of the wealthy is not new, but the pandemic crisis could accelerate a trend that has been building for decades.
Detailed spending data for the past year is not yet available from the government, but clues abound in the recovery from the Great Recession — a downturn that was shallower than the coronavirus crisis yet still drove sea changes in spending.
Experts say waiving patents won’t help poorer nations acquire the technical complexity of manufacturing coronavirus vaccines. (Luis Velarde/The Washington Post)
In the five years after spending by the top 20 percent hit bottom during that recession, their share of all spending on care services such as day care, preschool and eldercare jumped 9 percentage points to 56 percent of overall spending in that area. The story was similar in education spending, such as college and private schools, astheir share jumped 5 percentage points to 54 percent overall.
Discretionary spending by the top 20 percent on fun purchases like pets, toys and hobbies rose 3.4 percentage points to 38.5 percent of that overall category. In another category that includes hotels and vacation homes, where the top 20 percent were already dominant, they gained even more ground, reaching 59 percent of spending overall.
As the wealthy open their wallets, some of that money spills over to the working class by generating “wealth work” jobs. Firms looking to serve the high-end market need to hire armies of lower-wage service workers such as manicurists, fitness trainers and animal caretakers, and a smaller number of production jobs will also be created in industries such as construction.
Four areas of spending most vulnerable to the pandemic — education, hotels, recreation, and airlines and other transportation — also happen to be categories that are dominated by higher earners, according to a recent analysis by the New York Fed. The economists who conducted the analysis wrote that they “expect high-income households to drive an important part of the recovery” as spending bounces back and is driven to new heights by the hundreds of billions of dollars the wealthy saved during the pandemic.
Depending on how the rest of the year shakes out, U.S. policymakers could deepen old patterns of inequality or break the cycle completely.
Some $5 trillion in ambitious pandemic-era stimulus packages have shown that the government can almost single-handedly reshape the U.S. economy. Stimulus checks and jobless aid from former president Donald Trump and Biden helped the middle class weather the crisis, while boosting incomes of many at the bottom. Biden’s family and infrastructure plans couldpush the government’s role even further.
Sectors that depend on low-income spenders, such as groceries, rent, car insurance and gasoline, have weathered the downturn — largely because they are absolute necessities that get prioritized even during periods of economic hardship. Spending by low-income Americans nearly recovered by last summer, according to Opportunity Insights, largely because of stimulus checks and more generous unemployment aid.
But the cycle of economic recovery is not driven by necessities. It is driven by discretionary spending. And increasingly, that means luxury goods.
‘Travel is inherently a luxury item’
After an apocalyptic year that saw almost half of all jobs vanish, the leisure and hospitality industry is rebuilding itself from the ground up. Almost 1 in 7 jobs are still missing, as the sector experiments with ways to tempt the most desirable customers, including new premium services and subscription plans.
On an earnings call this year, Lindblad Expeditions founder Sven Lindblad laid out an agenda to turn the luxury cruise line — 35-day Antarctic cruises start at about $50,000— into a “diverse high-end travel aggregate.”
He said the line had already seen strong demand for the late second half of 2021, and2022 bookings were up compared with their pre-pandemic levels. For now, Lindblad Expeditions is focusing on Alaska — where it has doubled summer cruises from two to four ships due to soaring demand — as well as the Galapagos archipelago and, soon, Iceland and Greenland.
“We are well-prepared to start up again,” Lindblad said in an April earnings call. “We have excellent financial reserves, a couple of new companies under our umbrella and a marketing machine that is vastly strengthened for growth.”
Lindblad’s competitors are seeing a similar response.
Oceania Cruises’ 2023 world cruise, dubbed “Around the World in 180 Days,” sold out in a single day after opening to the public. Fares began at about $46,000 per guest, with elite suites going for about $160,000.
“We believe this achievement, along with multiple booking records we have announced in recent months, demonstrates the pent-up demand that exists from our mature and affluent cruisers even for long and exotic voyages once the severe impact of the pandemic subsides,” said Frank Del Rio, chief executive of Oceania parent company Norwegian, on an earnings call.
The Oceania line plans to add two newly built ships in the coming years, the first such additions in over a decade. When it launched its lineup of far-flung itineraries such as Africa, Asia and the South Pacific for the winter of 2022, the 18-year-old cruise line set its all-time record for single-day booking sales.
Oceania Cruises newest luxury ship, Vista, will begin sailing in 2023. (Oceania Cruises)
Marriott chief executive Anthony Capuano said this month that bookings at the company’s upscale Dorado Beach resort in Puerto Rico just hit an all-time high, yet another indication high-end tourism is bouncing back. Marriott officials are also opening more all-inclusive resorts as they see interest picking up among families traveling together on business trips and affluent consumers wanting to mix work and play.
“The post pandemic will see a very strong movement toward the most affluent in terms of product development and services, and so on, compared to those who don’t have the affluence needed to engage in travel,” said Robertico Croes, director of the Dick Pope Sr. Institute for Tourism Studies at the University of Central Florida. “Travel is inherently a luxury item.”
A golden age for private retreats
In addition to travel, the nation is in the midst of a second-home boom. While more than 7 million U.S. adults are behind on their rent, according to the Census Bureau, wealthy Americans are scooping up vacation properties.
Demand for second homes more than doubled during the pandemic and was up 178 percent in April and 48 percent in May relative to a year earlier, according to an analysis of mortgage-rate locks by economists at the national real estate brokerage Redfin.
The scramble for second homes perfectly encapsulates the unevenrecovery, said Redfin chief economist Daryl Fairweather. “Wealthier Americans are taking advantage of low mortgage rates, and demand for second homes is at all-time highs,” Fairweather said, “while skyrocketing home prices have pushed homeownership further out of reach for those who’ve struggled during the pandemic.”
Overall, sales of luxury homes rose 26 percent in the three months ending in April relative to the same time last year, Redfin economists found.
Pacaso, a San Francisco start-up focused on shared purchases of second homes, was launched by a Zillow co-founder just last fall and is now valued at more than $1 billion, according to the private-capital data provider PitchBook.
For a cost that ranges between $200,000 and about $2 million, Pacaso users can buy an eighth of a limited liability companythat controls a villa, cabin or bungalow in tony markets such as Palm Springs, Calif.; Park City, Utah; or Malibu, Calif. In exchange for a one-time, 12 percent cut of the purchase price, the company takes care of maintenance, furnishing and logistics, while owners get their share of the home’s appreciation or depreciation and can book stays using an app.
A South Lake Tahoe home for sale on the website of vacation home start-up Pacaso. For a little more than $600,000, buyers would own an eighth of the property. (Pacaso)
Luxury shops brace for the spending tsunami
Luxury retailers got steamrolled along with everyone else in the early days of the pandemic, but that bust is looking more like a boom these days.
A new wave of big spenders is injecting new life into storied luxury houses such as Gucci and Louis Vuitton, said Kayla Marci, a market analyst at retail-data firm EDITED. High-end spenders are drawing new luxury interest from higher-end, mass-market brands such as J.Crew and Uniqlo.
As she queried her firm’s database, Marci rattled off evidence of soaring prices. The average priceof high-end jewelry went from about $1,500 in 2020 to $2,360 in 2021, a 57 percent jump. Handbags are up 10 percent. Tops are up 15 percent, to an average of $1,166. More items are just selling out.
“Prices are rising,” Marci said. “We’re also seeing these mass markets aligning their prices with luxury or expanding the offering of high-end products.”
Venerable U.S. retailer J.Crew pivoted toward luxury price points and fancy watches, with the price of its most expensive goods in the three months ending in May rising about 158 percent above its top new items in the equivalent three months of 2019, according to EDITED.
Japanese fast-fashion powerhouse Uniqlo also moved into high-end retail with designer partnerships, recently introducing top-end items worth $100 more than anything it introduced in similar periods in 2019 or 2020, according to EDITED.
Competition for high-end consumers is heating up. In September, Amazon launched Luxury Stores, a somewhat exclusive outlet tucked into the company’s site and app. It is designed to compete with Farfetch, Alibaba Group’s Tmall Luxury Pavilion and other fast-growing luxury sites.
Deirdre Quinn, co-founder and chief executive of Lafayette 148 New York, is doubling down on luxury. The high-end clothing maker’s customers include Melissa McCarthy, Michelle Obama and Oprah Winfrey.
When the pandemic hit, business dropped — particularly the wholesale clients that had long been the firm’s bread and butter. Quinn stepped back and looked for opportunities. The result was the most aggressive expansion in the company’s history, she said. With commercial real estate prices down, Lafayette 148 opened 13 stores globally after the pandemic began.
“It’s made us aspire to be more luxury, less mass-market,” Quinn told The Post. “I actually have moved the brand more into luxury because I think that’s what my customer is looking for.”
The Lafayette 148 store in Miami’s Bal Harbour shops is one of 13 retail outlets the company opened globally after the pandemic began. (Lafayette 148 New York)
The firm also launched a luxury service that allows clients to shop privately in the home of a professional stylist. The average order size for these AtelierDirect clients is double that of its typical online or retail customers.
Customers are responding. In the first three months of the year, Quinn said, retail store sales were up 30 percent relative to pre-pandemic levels, and early signs point to even faster growth in the spring as customers at the brand known for its neutral palette embrace more bold, colorful and comfortable styles. Some of her customers call it “revenge glamour,” the rush to show the world you insist on looking better than ever despite a year of lockdowns and stretchy pants.
Spending big on the next generation
Another area where the top earners spend significantly more money — and a greater percentage of their income — is on their children’s education. Since 2001, the share of their income that the top 20 percent spend on education has almost doubled, even as it has stayed steady for the rest of the country. Wealthy families are paying for special tutoring, after-school activities and private schooling in an effort to give their children an edge in school and college admissions, and the pandemic pushed this trend even further.
As schools and day cares closed for months, affluent families looked for alternatives to ensure their children did not lose a year of education. Wealthy parents also needed a break, as they struggled to balance work and in-home child care. Some rushed to enroll their kids in private schools. Others turned to tutors.
Child-care provider Bright Horizons has greatly expanded its corporate partnerships during the downturn, as top employers sought a quick way to provide child care and tutoring, largely for their white-collar workers. Clients include Microsoft, Bank of America, Accenture, General Motors and mortgage giant Freddie Mac.
Big firms offer stressed parents new perks such as subsidized tutoring
Companies are also increasingly offering backup child care. Bright Horizons saw profits jump 20 percent from its backup child-care business in the past year. The child-care provider also expanded its options by acquiring Sittercity, a website to find babysitters and nannies, and kids camp provider Steve & Kate’s.
Kathy McIntosh runs a tutoring company in the D.C. area called Capital Learners Educational Services. Her phone started ringing off the hook in July as reality set in for parents that the pandemic was not going away any time soon: Schools were to be closed for much of the 2020-2021 school year.
“My business has tripled this past year — both with the number of clients and tutors,” McIntosh said.
The most popular option among parents in and around D.C. was “learning pods” that included their kids and a few others. McIntosh started putting groups of two to six students together. A tutor would go to a backyard and everyone would wear masks. At first, the focus was on the basics: reading and math. Then they added science and technology classes, a book club and theater offerings; parents kept asking for more options.
“Parents wanted something more than a nanny. They wanted someone with an educational background to not just babysit their kids, but be a teacher,” McIntosh said.
The pods started at $40 per hour — double the $20 hourly wage of a typical U.S. worker. Private tutors can run from $70 to $200, depending on the subject. There was so much demand that McIntosh more than tripled her staff, from 15 to 50, with inquiries from other parts of the country and overseas. She recognized this was a luxury many parents cannot afford and said she partnered with local schools to offer a few reduced-price and free spots in pods.
As more schools reopen, wealthier parents are now seeking private tutors to catch kids up on any subjects they have fallen behind on, setting up more disparities in education as many low-income students dropped out of virtual school because their Internet did not work well enough to attend classes consistently, data shows.
The rise of luxury education is another sign that, without significant changes in support for the lower and middle class, the inequality that has defined the early pandemic recovery could be perpetuated for generations.
Andrew Van Dam covers data and economics. He previously worked for the Wall Street Journal, the Boston Globe and the Idaho Press-Tribune.
https://www.washingtonpost.com/business/2021/06/18/luxury-boom-recovery/
Retailers need to stop expecting business to return to “normal.” There’s no going back to how it was anytime soon. Even before the Covid-19 pandemic and economic crisis, brick-and-mortar retailers had been fighting a fierce battle against Amazon and other e-commerce players. Those challenges have now accelerated at staggering speed.
The latest data from McKinsey shows that consumers are likely to keep the behaviors they’ve adopted amid stay-at-home orders, such as more online shopping and fewer mall visits. Retailers can’t afford to be in a wait-and-see mode. First, they need to reimagine their baseline requirements and then turn their attention to taking their customer experience to the next level.
A New Baseline
To start, retailers have to adapt their brick-and-mortar operations to comply with health-and-safety regulations and meet basic customer expectations. This includes mask wearing, ensuring physical distancing, and controlling the number of employees and customers in stores, instituting contactless transactions, improving speed of service, and introducing more self-service options.
Retailers also need to offer a simple and seamless e-commerce experience — from browsing to researching, selecting, purchasing, and returning/exchanging. Customers will no longer tolerate sub-par digital shopping experiences like they may have before the crisis. Retailers have to make sure their sites are mobile-responsive, offer integrated services such as “buy online pick up in store” (BOPIS), and deliver a consistent, reliable digital experience across devices and channels.
For a select few retailers, such as trendy fashion stores or pop-up restaurants, executing at this baseline level is sufficient. If demand for a product is so high and/or urgent — for example, as it had been for Shake Shack burgers, Nike shoe drops, or the latest Apple release — customers will still venture out to a brick-and-mortar location. Camping out overnight or waiting in hours-long lines to shop may eventually return as a super fan’s pastime. But that’s no longer a strategy to rely on – enhanced in-store operations and a well-functioning digital presence are table stakes.
Rethinking the In-Person Experience
For several years now, some retailers have been putting as much if not more priority on the in-store experience than on the products they sell. From Restoration Hardware to Bass Pro Shops and even Walmart, retailers have learned that holding events or offering special experiences and services in-store not only attracts customers, but also encourages them to linger longer, buy more products, and spend more on those products.
As a result of Covid-19, all retailers will have to make their in-store experiences even more extraordinary for those who can visit in person. They have to give people a reason to visit that is so compelling, it justifies their exposure to health risks and overcomes the inertia of the behaviors they adopted during the shutdown.
To get started, retailers can consider how premium movie theater brands such as Cinepolis emerged back when Netflix and other home movie-viewing options threatened the movie theater industry. These new experiences didn’t simply improve what had been previously offered to customers and address the shortcomings of existing options. They made visiting a theater better than watching at home — offering luxury reclining loungers, specialty food and beverages delivered seat-side, and lobby areas with bars to hangout with friends before and after movies. Retailers that offer an exclusive, superior experience like luxury cinemas once did can draw people out of their homes.
Elevated in-person customer service is another way to compete and win over online players, but retailers must think differently about service. Service can no longer be defined as a support for sales and be limited to generic efforts, such as greeting customers, handling complaints, and managing returns and special requests. Even personal shoppers, technical experts, and certified installers have become expected from most retailers of bigger ticket, more complex product categories.
Best Buy used this approach several years ago to rebound from its losing battle with Amazon. It introduced an advisor program that allows customers to get free in-home consultations about the products they should buy and how they should be installed. The service is intended to facilitate long-term customer relationships, not necessarily to close sales. As a result, it lured customers away from online options and positioned Best Buy as a trustworthy, more personal brand.
Digitally Native Customer Experience
This new emphasis on innovation and service needs to extend to the digital customer experience as well. Most retailers with roots in brick-and-mortar simply try to replicate their in-store experience online, but such efforts are fruitless and misguided. Beyond the transaction basics discussed earlier, customers don’t expect a virtual experience to be like an in-person one — nor do they want it to be.
Investing in some of the unique capabilities of digital — including real-time inventory management, predictive analytics, AI-powered search, and personalization and co-creation functions — can create completely new and different shopping experiences. Take, for example, social commerce, which not only enables companies to sell through social media channels but also incorporates social interactions; peer support, reviews, and recommendations; multimedia content; personalization; gamification; and more. A retailer can use these new capabilities to create a social, interactive, immersive experience wherever customers are — that’s something no physical outlet can provide.
To get inspiration and insights for designing an online shopping experience from the ground up, retailers might want to examine the evolution of other brick-and-mortar industries and institutions. When Covid-19 forced churches to shut down their weekly services, most simply transferred their church services online using digital conferencing solutions like Zoom. But Cincinnati-based Crossroads Church seized the opportunity to re-imagine its pastors’ weekly sermons. Now they film pastors delivering messages at different locations to help reinforce that week’s message (for example, talking about the importance of a strong foundation at the site of a historic church). Similarly, retailers can take advantage of the greater flexibility and new contexts that digital affords by, for example, depicting a single clothing item on multiple models to show what it looks like on different body shapes and sizes or using videos to demonstrate how real customers actually use a tool.
They can also take inspiration from how digital enables immediacy and interactivity for online education platforms such as edX and Coursera. Students studying software programming can upload their coding projects and get them automatically graded, so they receive instant feedback; psychology students can use an app that goes with their class to track their habits and better notice patterns in their own behavior. What might this look like in the retail context? Possibilities include AI-enabled answers to customers’ questions in real-time, instant video chat with a personal stylist, and apps that track usage of current products to make recommendations for new ones. Ideas like these arise when retailers think beyond adapting the in-person experience online.
This isn’t the time for the retail industry to try to simply ride out the storm. With a more proactive, progressive approach to both digital transformation and a new era of customer experience and service, the future might look less bleary.
https://hbr.org/2020/07/the-pandemic-is-rewriting-the-rules-of-retail
One of the legacies of the 2020 pandemic and the resulting lockdowns is the long list of retailers who’ve filed for bankruptcy. In the United States, the list of causalities includes Lord & Taylor, Neiman Marcus, Pier One, Brooks Brothers, Sur La Table, Guitar Center, and Stein Mart. During this same period, as consumers have increased their reliance on online shopping, Amazon’s share price has risen from $1,900 to $3,160. Will the end of the pandemic bring a surge of business to retailers? Will online grocery shopping become the norm? Can anything slow Amazon’s path to world domination?
Several major trends have changed the landscape for luxury brands. These shifts include the increasing role of technology (digital and mobile) as well as the use by consumers of alternative signals of status, such as wearing less prominently branded apparel, being less conformist (e.g., entering a luxury store in a casual outfit), consuming leisure time in a conspicuous way or, conversely, the flaunting of a busy life and a dearth of leisure time. In addition, people’s relative interest in buying luxury experiences versus luxury products is increasing. Technology has introduced new business models, such as collaborative consumption in a sharing economy (e.g., Onefinestay, Rent the Runway, Sentient Jet), and there is a more explicit focus on sustainability (e.g., Stella McCartney). Luxury brands need to consider the increasing global connectedness, particularly the importance of the Chinese market for luxury companies, as well as customers’ changing expectations for the brands. Companies can leverage storytelling to build their brands, and careful brand extensions can grow the business as long as they do not alienate core loyalists. Other potentially risky opportunities to weigh carefully are moving production from the original country of origin, letting the merchandise design be guided too much by customers’ wants and needs, using off-price distribution channels, and partnering with a mass merchant on a shared collection (e.g., Target and H&M collaborations).
“All the world’s a stage,
And all the men and women merely players;
They have their exits and their entrances,
And one man in his time plays many parts,
His acts being seven ages“.
https://www.goodreads.com/quotes/446687-all-the-world-s-a-stage-and-all-the-men-and
Write an essay related to the topic of the project. It should express your own thoughts and understanding of the main idea in a creative manner. Include the findings of the research (III) and explain the idea of „Thinking Outside the Box“ (IV) in the context of the post-pandemic era. What are (or can be) the lessons learnt from the pandemic?
Formulate the purpose of the project as you see it.
