Douglas Gollan, co-founder of Elite Traveler magazine, shares his thoughts on the book Plutocrats: The Rise of the Super Rich and the Fall of Everyone Else
Reuters business reporter Chyrstia Freeland recently authored the above titled 330 page book, certainly a well spent $27.95 for anyone involved in marketing luxury goods and services.
For those who read Robert Frank’s Richistan where the author followed a bevy of Ultra High Net Worth families and came to the conclusion that the Super Rich from Nigeria, China, Russia, Brazil, the USA or wherever have more in common with each other than their home country neighbors, the conclusions are similar.
Richistan is of course the fictional country the Super Rich live in as they tour the world on their private jets. Or as Glenn Hutchins, founder of private equity firm Silver Lake, tells Freeland: “A person from Africa who runs a big African bank and went to Harvard has more in common with me than he does with his neighbours, and I have more in common with him than I do with my neighbuors.”
“ The Median Annual Household Income of all Harvard graduates is a mere $163,000 ”
Of course the author points out despite “the best universities” being helpful in getting a good start to being Super Rich, the Median Annual Household Income of all Harvard grads is a mere $163,000, leaving the majority of Harvard men and women millions of miles behind their old school mates.
This ‘forgotten friends’ theme is carried through by Russian oligarch Victor Vekselberg who recalls one of his early partners who cashed out “for $100,000, which was a lot of money at the time.” He hasn’t seen or spoken to the former partner for decades.
Needless to say, this UHNW segment is now widely acknowledged as a spending powerhouse for luxury goods makers and service providers. As the Financial Times noted in Stateless and Super Rich, if there is bad weather in London, why not simply call the pilot and find out where the good weather is?
Lunch in Venice is always a nice option. Getting back to the office? That’s what the management team is for. Or for that matter, which office?
“ If there is bad weather in London, why not simply call the pilot and find out where the good weather is? ”
Freeland provides considerable data that the Super Rich are not done rising; and everyone else? Well, let’s say their outlook is not favorable: One U.S. based company has traded $120,000 per year University of Connecticut BAs in its Research Division for $60,000 India based PhDs “who are thrilled to work for us.”
In other words, the white collar Mass Affluent mid-level manager and worker of today may have more in common than they imagine with Blue Collar workers who found their jobs shipped overseas to save money. While Freeland doesn’t cover the implication for luxury providers, the apparent take away is that today’s aspirational consumer could well be chronically unemployed and struggling to make ends meet tomorrow.
It’s quite a thought for brands that invest so much in the aspirational segment with the vision of bringing them to a brand early and then nurturing them upmarket as their earnings supposedly increase.
If the thought sounds far-fetched, as I was reading Plutocrats, I noticed the IHT headline Europe’s Youth: Educated and Unemployed.
“ Today’s aspirational consumer could well be chronically unemployed & struggling to make ends meet tomorrow ”
Freeland has plenty of data to support the book’s title. In the 1970s, the Top 1% captured 10% of U.S. income. Today the very same group capture about 33%. And the trend is not US only. A 2011 OECD report showed similar changes worldwide including countries such as Sweden, Finland, Germany, Israel & New Zealand, all generally not considered hotbeds of cutthroat capitalism.
A 2005 Citibank memo to top clients explained “In a plutonomy there is no such animal as ‘the US consumer’ or ‘the UK consumer’ or ‘the Russian consumer.’ There are rich consumers disproportionate in the gigantic slice of income and consumption they take. There are the rest, the non-rich, the multitudinous many, but only account for a surprisingly small bit of the national pie.”
Recovery numbers in the US are distorted according to Alan Greenspan by “a significant recovery among high-income individuals, large banks and corporations…the rest of the economy, including small businesses and a very significant amount of the labor force is still stuck and struggling.”
“ In the 1970s, the Top 1% captured 10% of U.S. income. Today the 1% capture about 33% ”
93% of the gains in the 2009-10 recovery were captured by the 1%. 70% of the Top 1% made most of their money in the past 10 years. On top of that 46% of the Super Rich are self made entrepreneurs – many coming from modest families where luxury was not a part of growing up – and one can conclude the luxury industry has a lot of opportunities but a lot of work required to truly unlock their wallets.
In the past, events such as Fashion Weeks, major sports championships, Entertainment Industry awards such as The Oscars or Cannes Film Festival, etc. used to be mainly local crowds, B2B or team supporters. They are now becoming global pit stops for elite travelers, sometimes pushing others to the curb as they book blocks of hotel rooms, rent restaurants for private parties and push the price of tickets high and less affordable to the masses.
If you want to find super rich Chinese, better to look in San Francisco, Vancouver or London. Seagulls, as they are known, like rich Russians are more often than not out of their ‘home’ country. As a matter of fact, most of the plutocrats who spoke to Freeland were traveling more than 50 percent of the year.
On the extreme, Blackstone founder Steven Schwartzman relocated his base to Paris for six months to be closer to business opportunities in Eastern Europe and the CIS nations.
“ If you want to find super rich Chinese, better to look in San Francisco, Vancouver or London ”
They like to think of themselves as global citizens, bigger than a single country: Mohamed El-Erian, the Egyptian born CEO of the world’s largest bond trader PIMCO, says he can’t name a single country as his own. “I don’t belong to any one country. I belong to many and the World,” he told the author as he stopped in New York en route from his Newport Beach, California headquarters to St. Petersburg.
Around 150,000 Americans have a Household Income of over $4 million, a number Northwestern University scholar Jeffrey Winters says is the starting point for being a real global player.
If you don’t feel poor yet, to be in the 1% requires a Household Income $486,395 with a mere 749,375 American taxpayers fitting the bill. There’s a better chance to be in The Next 9% with some 7.5 million households – the downside is average Household Income is around $150,000 with many still trying to catch up from overspending before the recession.
The Super Rich have no problem spending when they want. Star dentist Bernard Touati is regularly shuttled to his clients on their private jets.
“ To be in the Top 1% requires a Household Income of $486,395 ”
Unlike Frank, the book doesn’t spend much time chronicling luxury consumption. Yes, there are references to a private performance of Cirque du Soleil for a Google meeting, private jets as de rigeur, Schwartzman’s $3 million birthday party, and former Merrill Lynch CEO John Thain redecorating his office for $1.2 million.
For luxury brands who wonder how much more spending potential the pockets of the Super Rich have, meet David Rubenstein, not a household name, but estimated to be worth nearly $3 billion. He tells the author how one afternoon he noticed the last privately held copy of the Magna Carta was being auctioned by Sotheby’s.
Struck by the idea the document wasn’t just the founding document of Britain’s constitutional monarchy, but the US democracy too, he decided there should be a U.S. owned version. He bought it for $21.3 million. When he got home, his wife asked him, “What did you do today darling?” His answer: “I bought the Magna Carta.”
If Plutocrats validates that luxury brands have considerable upside potential with UHNWs (Disclaimer: I was co-author of the 2007 book The Sky’s the Limit based on over 600 interviews with private jet owners), luxury marketers can certainly challenge their teams to figures ways to better tap into this incredible buying power.
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