Shaun Spellman, a 27-year-old owner of an Internet marketing firm, recently paid $300 for the newest Android cell phone the day it was released, even though he believes it will drop in price within a few months. But for Spellman, the benefit of having the latest technology is worth it. Though he's saving for an October wedding and a new home, "that doesn't stop me from making some purchases that I consider necessities." He skimps in other areas, driving a 1997 Camry and eating out only when he has a daily deal coupon.
RELATED: How Millennials Are Saving the Economy
Spellman is part of a generation that represents the fastest-growing segment of luxury goods and services purchasers. Though some millennials, those born between 1980 and 2000, are launching promising careers, most are burdened with large student loans, and thousands are unemployed (millennials make up one of the highest unemployment rates in the country). Despite this, they are making luxury purchases a priority.
According to a February report by American Express Business Insights, these young consumers increased their spending on premium luxury fashion by 33 percent in 2011 over the prior year, outpacing every other demographic, including boomers, which increased luxury spending by 19 percent. Young shoppers also led the way on jewelry spending, with an increase of 27 percent in 2011, while boomers’ spending on jewelry only increased 4 percent. The results were based on aggregated spending data from 2009 to 2011 that analyzed in-store and online spending at premium and discount luxury merchants.
Boomers remain the biggest buyers of luxury goods and services, at 50 percent, while millennials spend only 3 percent. Still, millennials are changing their behavior most dramatically, says Peter Niessen, vice president of American Express Business Insights for the retail industry.
Millennials are often turning to flash sales and daily deals to get luxury goods at a bargain. And they also trade up and down in discretionary categories, for example eating at less expensive restaurants, like fast food establishments, says Christine Barton, a partner in The Boston Consulting Group Dallas office.
"When we look at the luxury market, millennials are the growth engine going forward," says Jason Dorsey, a millennials expert and chief strategy officer for The Center for Generational Kinetics. He said brands represent a lifestyle. And with every move tracked through social media, luxury goods provide a strong visual representation "that either I've made it or I want to tell you I've made it," he says.
While their boomer parents didn't grow up with flat screen televisions or cell phones, millennials are "constantly bombarded with the latest and greatest electronic gadgets, and they're also subject to more peer pressure regarding the ownership of these items," says David Bakke, editor of Money Crashers Personal Finance. So while their parents coveted the latest style of blue jeans, younger people want the most modern iPad and a 4G smartphone, he said. They view these items as must-haves, not discretionary.
In addition to technology purchases, milliennials are the fastest-growing age segment in for travel services in 2010, growing 20 percent, according to American Express. Hotels are responding by adding more technological amenities like complementary high-speed Internet and iPads in every room.
Where is the money coming from? While many millennials are struggling, there are a significant number of affluent young professionals willing to splurge on discretionary items without thinking about the long-term consequences, according to Dorsey. They also tend to favor credit cards, and many have financial support from their boomer parents.
Barton points out that there are currently 79-million millennials, compared to boomers' 76-million. By 2030, they're expected to outnumber boomers by 22-million, a time when they are at their peak earning and spending years. With their established preference for luxury goods, this will likely mean a significant acceleration in their purchases in this segment. "I wouldn't underestimate them as they continue to age and increase their spending power," says Niessen.
