Conspicuous Consumption Returns As of 2004, there were nearly 9 million U.S. households with investable assets of $1 million or more, not counting their homes and tax-advantaged retirement accounts.
Another 48 million households earn between $50,000 and $150,000 ? enough money to afford some highly visible luxury items, such as Hermes scarves or Gucci handbags.
One area where consumption is especially conspicuous is in the real estate market. The Washington Post1 reports that the square footage of the average American home has grown from 1,660 in 1973, to 1,905 in 1987, to 2,433 last year ? an increase of 50 percent in just over three decades.
The amenities once reserved for millionaires are now mainstream features of high-end middle class homes being built on blue-collar blocks. Steam showers, Jacuzzi tubs,granite counters, and stainless steel appliances are now standard features in many homes selling for less than $500,000 in some areas.
For the truly affluent, however, the fact that many people can now afford a luxury item means that it has lost its exclusivity; if anyone can buy it, it doesn’t set the billionaire apart from the person who makes $100,000. For that purpose, only truly opulent purchases will do.
Consider some of the offerings described in recent issues of the duPont Registry,2 which is targeted at high-net-worth individuals:
? A Patek Phillippe watch, priced at $1.2 million
? A Bugatti Veyron luxury sports car, for $2.4 million
? Your own golf resort in the Caribbean, for $62 million
As the publisher of the duPont Registry, Tom duPont, told the Associated Press, the wealthiest people’s urge to splurge on themselves is based on a simple philosophy:
“You are what you are surrounded by.”3In the 20th century, the surroundings that signified quality and prestige to wealthy Americans were Rolex watches, Rolls Royce cars, mink coats, Dom Perignon champagne, Beluga caviar, and Prada handbags.
Today, two of the more coveted symbols of conspicuous consumption, according to a Reuters4 report, are:
? A platinum cell phone from Vertu, a division of Nokia, which sells for $30,000.
? A custom-designed Maybach car, from DaimlerChrysler, priced at just over $300,000.
Add to that wish list a $300 million yacht. Among the wealthiest Americans, there’s an unofficial competition to see who can show off the biggest yacht.
As the magazine Power & Motoryacht5 reveals, there were only five boats that were bigger than 150 feet on its 1985 list of the 100 largest yachts.
But there were 18 yachts that were 150 feet or longer on its 1995 list. And, at the end of 2005, the 100 largest yachts were all bigger than 150 feet long.
According to Power & Motoryacht’s latest ranking of the biggest yachts, the top prize goes to the Rising Sun, skippered by Oracle tycoon Larry Ellison.
It is 452 feet long and includes a landing craft for carrying a Jeep ashore.
Second on the list is the 414-foot Octopus, which is the pride of Microsoft co-founder Paul Allen, who has two other yachts on the list.
The Octopus includes a basketball court, swimming pool, movie theater, music studio, and personal submarine.
In third place is the Limitless, a 315-foot yacht owned by Limited Brands mogul Leslie Wexner, who founded Victoria’s Secret.
In fourth is Tatoosh, a 301-footer that is Paul Allen’s second-biggest boat.
It is large enough to hold two helicopters, as well as a powerboat, sailboat, swimming pool, and a lobster tank.
The price tag for one of these mansions of the sea is in the $300 million range, plus tens of millions of dollars each year for fuel, maintenance, and salaries for the crew.
This may be what economist Thorstein Veblen had in mind when he coined the term “conspicuous consumption” in 1899.
He theorized that status-conscious consumers would want others to see evidence of their wealth through the products they could afford to buy.
Ironically, Veblen’s own home in Menlo Park, California, where he died in 1929, was sold in 2004 as a “tear down,” soon to be replaced by a mansion. According to the New York Times, the sale price for the run-down house that was demolished was $1,150,000.
Whether it’s the mega-yachts, enormous homes, or limited-edition sports cars, conspicuous consumption has gained renewed momentum in the 21st century.
And with a large portion of the 9 million millionaire households in the United States trying to “make a statement,” there is more demand for luxury goods than ever.
According to Ori Heffetz, the author of a Princeton University study called Conspicuous Consumption and the Visibility of Consumer Expenditures,6 “Everyone knows that the richer you are, the more money you will spend on luxury.”
But Heffetz also found that the better off a household is, the greater percentage of their income they spend on goods and services that are more conspicuous and visible to society.
Heffetz told the Toronto Star7 that wealthy people are less likely to spend their extra money on less visible luxury goods like expensive groceries; instead, “those extra dollars are biased toward things that [their] neighbors can see.”
But, like more than most demographic groups, millionaires are not homogenous.
A new study of millionaires reveals that there are actually several major types of them that can be identified based on their lifestyles and spending habits.
The research was led by Larry Samuel, who holds a Ph.D. in American studies from the University of Minnesota and is described as “the anthropologist of plutocrats” by Slate.com.8
Samuel’s market research firm, Culture Planning, recently looked for insights into wealthy Americans for its client, J.P. Morgan.
This research led him to classify the wealthy into five groups: Thrillionaires, Coolionaires, Realionaires, Wellionaires, and Willionaires.
Thrillionaires are conspicuous consumers who use highly visible luxury goods as a way to prove their status to others.
Donald Trump and stereotypical rap stars are examples of thrillionaires.
Coolionaires are rich people who use their wealth to buy artwork, sponsor opera companies, and support theater groups.
They like to be associated with things that are considered “cool.”
Realionairesare people who value their privacy and who are willing to spend their wealth on expensive, high-quality items.
Realionaires don’t mind the expense of hand-crafted furniture or an Ivy League education for their children; they buy it because it is worth the money, not to impress others.
Billionaire Warren Buffett is an example of this category.
Wellionaires are rich people who place a high value on wellness and spiritual pursuits, such as yoga, spas, and meditation. Oprah Winfrey exemplifies the wellionaire approach.
Willionaires are often people who were born into families that have been wealthy for several generations.
They tend to focus on their legacy and on the good they can accomplish through philanthropy.
David Rockefeller is a well-known willionaire, as are Tom Monaghan of Domino’s Pizza, Bill Gates of Microsoft, and the founders of Hewlett-Packard.
This classification system is more than an idle exercise.
According to Susan Hirshman, Managing Director and Chief Wealth Strategist at J.P. Morgan Funds, “To serve [a wealthy client], we have to understand the underlying person and what his or her value system is.”
That means if you’re advising a wellionaire on how to spend her money, you might point her to real estate in a “spiritual retreat” like Sedona, Arizona.
For a thrillionaire, you might recommend a yacht harbored in Palm Beach.
A realionaire might be more interested in a solid, low-risk investment. (Ross Perot’s fortune is now almost entirely in municipal bonds.)
A coolionaire would be attracted by the opportunity to buy a masterpiece by a young artist.
And a willionaire would be more likely to make a donation to fund efforts to cure a disease or advance his religious beliefs.
Based on this understanding of the powerful trend toward conspicuous consumption, we offer six forecasts:
First, sales of luxury products will reach $1 trillion by 2010.
The Boston Consulting Group predicts sales of luxury products to nearly double from the $525 billion in 2004 sales.9
Second, the outlook for growth in luxury goods will remain strong well beyond 2010 as foreign economies increasingly generate a sizeable wealthy class.
Nouveau riche entrepreneurs in countries like Russia, China, India, and Brazil will increasingly take pride in flaunting the brands that broadcast their status for everyone to see.10
Third, the focus of conspicuous consumption will increasingly spread from luxurious goods to luxurious experiences.
As the Financial Times11 recently observed, “The guests at a dinner party are more likely to be impressed by your recent trip to Bhutan than by the Bentley outside or your Prada dress.”
One strategy for companies that make luxury goods is hedging their bets by providing “luxury services.”
For example, Bulgari and Georgio Armani are now opening high-end hotels and resorts.
Fourth, conspicuous consumption will present a temptation for top executives of publicly traded companies.
However, as soon as there is a hint of misbehavior, any lavish personal spending on the company tab will be used as evidence against a CEO.12 For example, revelations that former Tyco CEO Dennis Kozlowski spent $6,000 on a shower curtain and $2 million on a birthday party, for his wife, on the island of Sardinia helped turn public opinion against him.
Fifth, new business strategies will arise when entrepreneurs apply “formerly mass-market” business models to luxury-craving customers.
For instance, according to Daniel Nissanoff, author of the book FutureShop,13 a market exists for used luxury goods.
He contends that high-end goods sell poorly on eBay because there aren’t enough bidders who can afford them.
In response, he has created a site called Portero, which he calls “an eBay for the rich.”
It gives wealthy people a place to sell luxury goods they no longer want ? and a place for upper-middle-class consumers to buy the goods that provide instant status.
Sixth, the conspicuous consumption trend does not mean that the richest people are spending only on themselves.
In fact, thanks to the willionaires, philanthropy is also on the rise, with tremendous benefits to private charities and social causes, as we will explain in our discussion of the next trend.
References List :
1. The Washington Post, March 25, 2006, “Bigger Houses Bring Big and Costly Energy Problems,” by Kristen Gerencher. ⓒ Copyright 2006 by The Washington Post Company. All rights reserved.
2. To access duPont registry, visit their website at: www.dupontregistry.com
3. Associated Press, December 6, 2005, “Conspicuous Consumption the Theme in Extravagant Gift Guides,” by Jeff Wilson. ⓒ Copyright 2005 by The Associated Press. All rights reserved.
4. Reuters News, March 18, 2005, “Americans Flock to Luxury as Mass Affluence Grows,” by Martha Graybow. ⓒ Copyright 2005 by Reuters Limited. All rights reserved.
5. Power & Motoryacht, November 2005, “Americas 100 Largest Yachts ? 2005,” by Diane M. Byrne ⓒ Copyright 2005 by Primedia Magazines, Inc. All rights reserved.
6. To access the latest version of Ori Heffetz thesis, “Conspicuous Consumption and the Visibility of Consumer Expenditures,” visit the Cornell University website at: www.forum.johnson.cornell.edu
7. Toronto Star, May 15, 2005, “Flaunting It,” by Sharda Prashad. ⓒ Copyright 2005 by The Toronto Star. All rights reserved.
8. To access the article “Are You a Thrillionaire or a Realionaire?” visit the Slate website at: www.slate.com
9. Reuters News, March 18, 2005, “Americans Flock to Luxury as Mass Affluence Grows,” by Martha Graybow. ⓒ Copyright 2005 by Reuters Limited. All rights reserved.
10. Financial Times, June 12, 2004, “The New Luxury.” ⓒ Copyright 2004 by The Financial Times Limited. All rights reserved.
11. ibid.
12. For information on evidence used at CEO Dennis Kozlowskis trial, visit the CNN.com website at: www.money.cnn.com
13. FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell, and Get the Things We Really Want by Daniel Nissanoff is published by The Penguin Press. ⓒ Copyright 2006 by Daniel Nissanoff. All rights reserved.
