Marketing & Communications Briefs

Meet America’s Most Valuable Consumer: Her Name Is HENRY

December 16, 2020

While the US is suffering the health and economic impact of the COVID-19 crisis, retailers’ silver lining is targeting the affluent segment through customer experience and value

The COVID-19 retail shutdowns earlier this year did uncalculatable damage to the retail economy. Thankfully, the retail market has been climbing out of its big hole after stores started to reopen in the early summer. Its recovery seems so close that the National Retail Federation (NRF) just released its holiday shopping forecast, predicting retail will end the last two months of the year up between 3.6 percent to 5.2 percent from last year, excluding automobile dealers, gasoline stations and restaurants.  

But those predicted increases are not likely to be spread evenly across all retail sectors. When the government determined which retailers could stay open for the duration – and which had to close – the scales were weighted to favor e-commerce, mass merchants, dollar stores, grocery, and home improvement retailers. That left many others, such as fashion, jewelry, footwear, and furniture and home furnishings stores, hanging by a thread.

A recent study from IBM projects retail sales will contract by about 3% overall this year (excluding automobiles, motor vehicle parts and gas stations), based on macroeconomic trends, including unemployment, savings rate, new home sales, and consumer confidence.

The IBM study also delves into various sectors in the retail economy and found huge swings with many more sectors losing than winning. Online retail will be the biggest winner of all, expected to end 2020 up 20% year-over-year, along with beer, wine and liquor stores (up 16%), building materials stores (up 14%) and grocery stores (up 13%).

On the other hand, the biggest losers are retailers classified early on as “non-essential,” such as department stores (down 49% year-over-year through October), clothing and accessory stores (down 32%), bookstores (down 31%) and office supplies, stationery and gift stores (down 23%). The most non-essential of all, jewelry stores, have done so badly this year that the Census Department’s monthly retail trade survey hasn’t reported on them.

“For three months, we were told by the government what was essential retail and what wasn’t,” says IBM’s Karl Haller, who leads its Consumer Center of Competency. “Now the only person telling you if you are essential or non-essential is the customer. The challenge for every retailer within the ‘non-essential’ space is to go out and find your essential again. And it probably won’t be the same one that it was a year ago. This is the challenge facing every retailer that depend upon emotional, discretionary purchasing.”

For retailers to be “essential” again, they need a deep understanding of who that essential customer is and what that essential customer wants most.

NRF’s bombshell

When the NRF announced its surprisingly strong holiday forecast, its chief economist Jack Kleinhenz cited strong household “balance sheets supported by a strong stock market, rising home values and record savings boosted by government stimulus payments issued earlier this year.” Kleinhenz, who is an advisory board member of The Conference Board’s Consumer Dynamics Institute, also added that jobs and wages are growing, energy costs are low and reduced spending on travel and entertainment has freed up money for more retail spending.

All that’s well and good, but it only applies to one segment of American consumers: those at the top of the income pyramid earning incomes of $100k or more. They are the nation’s homeowners and have powered through the pandemic with their incomes largely intact.

But they also make up only about one-third of the nation’s ~130 million households. The two-thirds remaining – 85 million out of the total 128.5 million – got a stimulus package lifeline that helped them and subsequently retailers during the third quarter. But that money’s been spent, and they are going into a holiday season struggling to make ends meet.

Retailers’ essential: affluent women, the HENRYs

Retailers can’t count the middle-and-lower income consumers out. They generate about 50% of consumer spending, but the ones with the most spending power are the upper-income households.

The high-earners represent about one-third of all U.S. households, or 44 million. Within that upper-income segment there are 7.6 million at the very top (ultra-affluents bringing home $250k+ and the traditional target for luxury brands) and a significantly larger group of 36 million right underneath them.  These are the HENRYs (high-earners-not-rich-yet) with incomes between 100k-$250k. Unlike the ultra-affluents who think of themselves in the luxury class, HENRYs perceive themselves very much a member of the middle class.

Individually, a HENRY doesn’t have the spending power of an ultra-affluent consumer, but collectively HENRYs account for about 40% of all consumer spending, according to the Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics (BLS). These are the essential customers every retailer needs to attract.     

Women control the household purse strings and HENRY women have bigger purses

As household income rises, so too does marital status. Some 87% of the high-earners are married and live in intact families, as compared to 64% for those with incomes under $100k. Within those high-earning households, women control or influence the lion’s share of household spending, between 70% to 80%.

Across the $6+ trillion retail economy, HENRY women, therefore, represent nearly a $2 trillion opportunity for retailers.

Other defining characteristics of the women in HENRY households include:

• More youthful – Some 38% of HENRYs are in the prime spending years between 25 to 44; ultra-affluents are older with only 33% in this age range, and at the lower-income range under $100k, only 31% are aged 25-to-44 year.
• Highly educated – HENRYs have about the same high level of educational attainment as ultra-affluents (61% have a bachelor’s degree or better), which is way above the 27% among lower-income households. This translates into a shopper less driven by price and one who measures value for her and her family across a wider range of variables, like better quality, longer life, sustainability and the service experience.
• Multi-tasking – While lower-income households average just one wage earner, HENRYs average two, which means both partners are employed. With women bearing the brunt of home maintenance and child-rearing duties (HENRY households average 3.1 persons as compared to 2.3 for lower-income households), she values saving time. She needs to maximize her efficiency and effectiveness in the time she spares for shopping. It’s no wonder then that online shopping is so important to her.
• Homeowner – And given that the median price of a home is now $325k (mean nearly $400k), it is no surprise that the high-earners make up the majority of homeowners. Over 80% of them own their own home, while only 59% of the lower-income households do.

And given HENRYs’ relative youth, these women are an important future customer for luxury and high-end retailers, though frequently overlooked and undervalued by them. Since household incomes rise until people reach 55 years of age, many of today’s HENRY women will see their income rise over the next decade.

While not all HENRYs reach ultra-affluent levels of income, most all ultra-affluents go through a period of being a HENRY. High-end retailers that make a positive connection with a young HENRY woman can build the kind of long-term customer loyalty that every retailer hopes to achieve.  

Be a retailer for her  

With the HENRY woman in sight, retailers must deliver not just the products she wants but also the shopping experiences she values most. That requires retailers find their “essential” value to her, beyond just being a place to buy stuff. 

“Traditional retail, in this and any other sector, has less and less value to consumers and less and less economic value, if traditional retail is buying something for X and selling it for Y,“ advises IBM’s Karl Haller. “The ability to generate sustained economic value doing that is declining and rapidly approaching zero, especially when dealing with discretionary purchases. You have to create demand. You have to provide more than a product and a place to buy it,” he says.

The essential quality that HENRY women are looking for in every category she buys is value. She wants to get the most for the money she spends. While she is not always looking for cheaper, she certainly doesn’t want to spend more just for the sake of spending more. So retailers need to understand the value proposition that underlies her spending.

For each retailer that essential value proposition will be different but clearly differentiating on it and communicating it to her is essential.

The HENRY woman is information hungry. If retailers don’t give her reasons why she should engage with the store and the special values she will get there, then her shopping and purchase decision will inevitably revert to the common denominator of price. Or worse, she’ll take her business to another retailer who better understands her.