Luxury for the masses

Increasingly wide income disparities, higher levels of education, and greater awareness of other cultures' ideas of the good life have given rise to a new class of American consumer. And a new category of products and services, including automobiles, apparel, food, wine, and spirits, has sprung into being to cater to it. That category is called new luxury. America's middle-market consumers are trading up to higher levels of quality and taste than ever before. Members of the middle market (those earning $50,000 and above annually) collectively have around $1 trillion of disposable income. And they will pay premiums of 20% to 200% for well-designed, well-engineered, and well-crafted goods that can't be found in the mass middle market and that have the artisanal touches of traditional luxury items. Most important, even when they address basic necessities, such goods evoke and engage consumers' emotions while feeding their aspirations for a better life. Supply-side forces are essential to the rise of new luxury. Like the consumers of their goods, entrepreneurs are better educated and more sophisticated about their customers than ever before. In addition, global sourcing, falling trade barriers and transportation costs, and rising offshore manufacturing standards are making possible the economical production of alluring products of high quality. Unlike old-luxury goods, new-luxury products can generate high sales volumes despite their relatively high prices. As a result, new-luxury companies are achieving levels of profitability and growth beyond the reach of their conventional competitors. Whether the item in question is a $6 Panera sandwich or a $30,000 Mercedes, new luxury is a formula that middle-market companies, facing erosion of their market share by high-end and low-end producers, can ill afford to ignore.