On 29th June 2007, the way we consumed goods changed forever. This was the day that Apple announced the launch of its latest gadget, the iPhone. The iPhone overnight became a beautiful, desirable status symbol, not in the way a top of the range Mercedes or even a Versace suit might say, “Look how rich I am”, but in a way that said something entirely different; “Look at me, I’m tech-savvy, stylish and ahead of the curve”. The iPhone was expensive enough for most people to think hard about purchasing one (it launched at $499 for a basic model), but it was not out of reach for every day consumers. This moment was a catalyst for the democratisation of luxury, the expansion of the mass affluent, and the dawning of the millennial consumer generation.

"In a credit-driven society, do we really need assets to be affluent?"

Traditionalists might categorise mass affluent as having liquid financial assets of over $100,000 and an annual income of $75,000, but in a credit-driven society, do we really need assets to be affluent? The new iPhone X that launched last year, starts at $999 for the basic model, the sort of price tag previously only associated with ‘luxury’ phone brands, such as Vertu. An iPhone is as much a status symbol in the boardroom as it is on the street corner, and has become a demographic leveller. So much so that brands like Vertu have ended up failing.

In the 1980s, Stella Artois beer sold itself with “Reassuringly Expensive” as its tagline, and this is the essence of brands such as Apple, who deliver a high-quality product, cutting-edge design and technology, and on-trend marketing that build a cult following. Sought-after, luxury products are democratised through affordability, especially when mobile network operators provide handsets costed over two years at 0% interest. As Steve Jobs put it: “You know, everybody has a cell phone, but I don’t know one person who likes their cell phone. I want to make a phone that people love.”

 

Perception is everything, which is why the Android imitators have found it difficult to break Apple’s stranglehold on the market, with the exception of course, of Samsung. In Q1 2017, Apple had 14% of the global market share, behind Samsung at 20%[1]. Previously sought-after brands such as Sony have struggled to compete across a range of products, from their laptops to phones.

"Tesla’s brand credentials have seen it overtake the market cap of General Motors in the US, despite having a fraction of the sales."

While Apple is leading the charge, others are riding swiftly on its coat tails. Tesla – once regarded as the brand of choice for eco-sensitive Hollywood royalty – has released its first ‘economy’ car, the Model 3, which comes in at around £35,000 (the same price as a new mid-range BMW). Tesla’s brand credentials have seen it overtake the market cap of General Motors in the US, despite having a fraction of the sales. The vision of clean, self-driving vehicles is the future – and this is what Tesla is delivering right now.

This is something global early adopters are buying into. Amazon’s acquisition of Wholefoods last year, widely regarded as both the most expensive and healthiest of the US supermarket businesses, is signalling a leap forward in the quality of produce Amazon intends to retail. If they are going to be taken seriously as an online grocer they need to build instant brand trust and recognition, and with Wholefoods, nobody is going to doubt the quality and provenance of their products. Coupled with same day deliveries and an unmatched logistics chain, this is likely to push Amazon towards the mass affluent, aspirational market.

 

In the UK, supermarket chain Waitrose and parent company John Lewis, have long been seen as the shop of choice for the up-and-coming middle classes. Perception of price and quality is high[2], but they are also in the top 10 most recognised and trusted UK brands, according to the annual Superbrands survey[3].

"In the last five years, mass affluent and millennial engagement with luxury products has dipped."

In the last five years, mass affluent and millennial engagement with luxury products has dipped. Known as the Experience Economy, they tend to value experiences over things; experiences change your life, they produce lasting memories, whereas ‘things’ don’t. The hike up the Inca Trail is far more likely to make a lasting impact than, for example, a new Hermes handbag, something we discussed in detail at House of Killik Soho with businesses including Patchwork It, IGO Adventure and Rapha Travel. After studies into what builds happiness, Dr Thomas Gilovich from Cornell University stated: “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.” This is why the brands that millennials and mass affluents often engage with are the facilitator brands: Apple for connectivity, Tesla for transport, Amazon for shopping.

 

The mass affluent market is now the key demographic to focus on for ambitious brands. The super high-end luxury market will always have its ultra-high net worth supporters and their aspiring acolytes, but more and more of the market is moving away from opulent status symbols of the past, and towards affordable, cutting-edge design and technology. This is where we believe some of the best long-term strategic investment opportunities could lie.

 

[1] Gartner – Smartphone Sales
[2] YouGov – Waitrose
[3] Superbrands 2017 b2c brands

 

 

This article is designed to throw an everyday lens on some of the issues being discussed and debated by investors across the world; it is not research, so please do not interpret it as a recommendation for your personal investments. If something has piqued your interest and you would like to find out more or discuss what investments might be suitable for you, please contact one of our Investment Managers on 020 7337 0777.

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