Douglas Gollan, co-founder of Elite Traveler magazine, shares the need to know insights from Knight Frank’s 2013 wealth report for luxury brand marketers
The 2013 version of The Wealth Report is out – written and produced by real estate advisor Knight Frank, drawing on data produced by the firm’s research teams as well as from Wealth-X, China’s Hurun Report, Yahoo Finance, Financial Times, Ledbury Research, Artprice and a myriad of other sources.
The report centers mainly on the financial aspects of the Super Rich with a bent towards investing in real estate so for those of you more interested in luxury lifestyle elements (hotels, resorts, fashion, jewelry, watches, etc.) I have taken the liberty of digging through and providing highlights.
As a quick point of reference, the report confusingly uses HNWI (High Net Worth Individual) to describe the group it studies, which is defined as somebody with more than $30 million in Net Assets taking into account both debt and liabilities. Many others (Merrill Lynch, WealthInsight, RBC, Citigroup, Prince & Associates) use HNW to describe $1 million + and more typically UHNW (Ultra-High Net Worth) is the tag for those $30 million +.
“ UHNWs increased their fortunes by $566 billion in the past year ”
Labels aside, in case you don’t have time to read the 68 dense pages of charts, articles, sidebars and analysis I have highlighted what I believe are the highlights, with the caveat that I do use the UHNW term as in my opinion this is that there is a difference, and while certainly folks worth $1 million are High Net Worth – those over $30 million are Ultra High Net Worth.
1. Despite economic turmoil that has hampered the fortunes of aspirational consumers in the West, global UHNWs increased their fortunes by $566 billion in the past year – or to put it in perspective 28 times more than the total annual exports of the Swiss watch industry and 10 fold more than total annual rooms revenue of luxury hotels and resorts worldwide.
2. Total UHNW club increased by two percent to 189,835 families. The UHNW population increased in every region, including stagnant Europe and North America.
3. The Super Rich are not going away – their population will increase – to 285,665, a growth rate of 50 percent by 2022. Separately, Bombardier projects some $260 billion in new private jets delivered by 2020, so clearly the UHNWs look at private jets are the chariot of choice.
“ The Top Global Cities for UHNWs are New York, London, Tokyo, San Francisco & Los Angeles ”
4. The Top 30 Global Cities for UHNWs are 1) New York, 2) London, 3) Tokyo, 4) San Francisco, 5) Los Angeles, 6) Beijing, 7)Mumbai, 8) Hong Kong, 9) Sao Paulo, 10) Rio de Janeiro, 11) Delhi, 12) Mexico City, 13) Osaka, 14) Shanghai, 15) Chicago, 16) Paris, 17) Houston, 18) Washington DC, 19) Dallas, 20) Toronto, 21) Zurich, 22) Munich, 23) Singapore, 24) Sydney, 25) Dusseldorf, 26) Hamburg, 27) Geneva, 28) Melbourne, 29) Frankfurt, 30) Rome.
5. Sustained high youth unemployment rates in the West means the next generation of aspirational consumers is more likely to be looking for a job than a new designer handbag despite the best marketing efforts of luxury brands. Former US Treasury Secretary Lawrence Summers is quoted as saying this segment of the youth population has “no hope of the same levels of financial or social success as their parents ”who are now being squeezed as well.
6. If you are looking for Super Rich clients – look up – as up in the sky as they circle the globe on their private jets. Russians who have been an important driver of London’s property market and the Med are a “growing force in New York and Miami.” But they are facing competition from Chinese and Latin American buyers.
“ Increased investment in commercial property will further encourage UHNWs to hop on their private jets ”
7. UHNWs need to be viewed as a global market. Avid readers of the Financial Times might recall its article “Stateless and Super Rich” that UHNWs migrate the world in pursuit of new business opportunities, good weather, nice lifestyle, top schools and such.
Knight Frank confirms the mindset: Among those surveyed, 60 percent of Europeans, 61 percent of Middle Easterners, 67 percent of Russian/CIS and 73 percent of Latin Americans are considering “changing their country of residence of domicile.”
8. And to this point, children of today’s UHNW Asians and Latin Americans will push their parents continued global travels – 85 percent of Asians and 81 percent of Latin Americans send or will send their children overseas to school, primarily in North America or Europe.
9. Increased investment in commercial property will further encourage UHNWs to hop on their private jets. Over half (52 percent) of Middle Eastern/African UHNWs will be pursuing global commercial property acquisitions this year, with 33 percent of North Americans, Asians and Russian/CIS UHNWs looking to follow the activity of sovereign wealth funds that have been active the last couple years.
Shopping in the places these folks go combines with demand for suites in hotels that can be used as pseudo-office command centers to house their entourages.
10. In touching on luxury goods consumption, watches are second only to Fine Art in Passion Investing ahead of 3) wine, 4) jewelry, 5) Classic Cars, 6) Sports teams, 7) Furniture, 8) Coins and 9) stamps.
“ Knight Frank reports UHNWs total Net Worth now exceeds $26 trillion ”
So how well are luxury goods and service providers doing in terms of separating the Super Rich from their increasing fortunes?
Perhaps not as well as they could. While Super Rich consumers continue to be the big spenders on luxury, luxury providers are losing share of wallet: Bankers surveyed said 10 percent of their UHNW clients spent more on philanthropy last year versus only 1 percent increasing spending on luxury goods.
Why? Knight Frank doesn’t cover this, however, my experience is many luxury brands wrongly think they are covering the Super Rich if they sponsor a couple polo tournaments and hold a private dinner here or there.
From a pure media perspective, nearly 100 percent of ad budgets are focused on aspirational consumers (those that make under $400,000), and from a geographic perspective, marketing is still done mainly on a country-by-country basis even though Knight Frank re-enforces today’s UHNW families are truly global.
In other words, many UHNWs simply aren’t aware that Watch Company X now does jewelry, Jewelry Company Y has staked a claim to high watchmaking, the heritage the makes fashion company Z so special or all the great reasons they should visit Country B.
Knight Frank reports UHNWs total Net Worth now exceeds $26 trillion (Citigroup pegs it over $40 trillion). Perhaps it’s time for luxury marketers to have more focus on how they can get money from those consumers who have plenty as they certainly have been incredibly successful at getting money from those who barely have it.
To further investigate wealth & affluence on Luxury Society, we invite your to explore the related materials as follows: