Who are the luxury consumers that are not HNWI’s?

The High Net Worth Individual, commonly referred to as simply HNWI, has long been a focus for many companies, whether it be private banking firms or luxury brands. The big desire is to attract and retain these customers given the value of their investable funds. 

So, what defines these HNWIs? And are there other consumers out there that can be identified who aren’t HNWIs but behave similar to these luxury consumers?

To start, it’s worth defining what “high net worth” actually means. According to Investopedia, a HNWI is somebody with around $1 million in liquid financial assets.  An investor with less than $1 million but more than $100,000 is considered to be "affluent" or perhaps "sub-HNWI." The upper end of HNWI is around $5 million, at which point the client is then referred to as "very HNWI." More than $30 million in wealth classifies a person as "ultra HNWI."

Capgemini Research Institute adds even finer nuances to how a wealth management firm may classify these individuals. Capgemini separates the HNWI population into three wealth bands: millionaires next door ($1 million to $5 million in investable wealth), mid-tier millionaires ($5 million to $30 million) and ultra-HNWIs (those with more than $30 million). Globally, 183,400  people were considered ultra-HNWI in 2019. Mid-tier millionaires numbered 1.75 million, while millionaires next door was the largest group at 17.6 million people.

Millionaires next door are quite a sizable target market at the “low end” of the HNWI spectrum. With assets well invested and managed by private bankers, these individuals have the ability to spend their interest and dividend payments to live a highly coveted lifestyle. 

Now that we know a bit about the criteria to be considered a HNWI and how many there are, let’s return to the original question: are there other consumers out there to find who are not HNWIs but behave like these luxury consumers do?

Enter the HENRYs: Highly Educated, Not Rich Yet. 

It’s not a new term. Shawn Tully coined the acronym in a 2003 Fortune magazine article, as he lamented about the introduction of the AMT -- Alternative Minimum Tax -- in the USA, but it now characterizes a certain group of six-figure earners who are mostly millennials.  This affluent luxury consumer group has been identified as being around 43 years of age on average, with an income of more than US$100,000 and investable assets of less than US$1m.   

I wonder how a wealth management manager may classify these high earners? Do they live in a condo next door to the millionaire next door?   

The ‘HENRYs’ were pegged as a new group of powerful luxury customers in Deloitte’s recent  Global Powers of Luxury Goods 2019 report. Brands, eager to tap into this promising market, are now trying to create positive relationships with these potential luxury consumers.

“With 'Henrys' likely to become of some of the wealthiest members of society, the potential benefits of on-boarding this demographic to luxury brands’ product and service portfolios are twofold: securing valuable present customers and building client relationships and business with those might likely to be among the most affluent customers in future,” the Deloitte report says.

Interestingly, Investopedia called HENRYs the "working rich" — if they stop working, they won't be rich. More of their earnings, "go into costs than go into wealth building investments, leaving them feeling like they are more like regular people slaving for a pay check than the wealthy 1% in America," Investopedia said, adding  “these high earners are expected to have much the same lifestyle as wealthier compatriots but they do so by sacrificing their ability to amass wealth.”

Since the HENRYs spend, in many cases, a similar amount as a HNWI, they can’t be ignored and it is important to know who they are and what makes them tick.  Can or should they be treated in the same manner as one would treat a HNWI? As a brand manager, I would argue yes, due to their spending habits and lifetime spend potential. But what happens to the special treatment that true HNWI’s want and expect? Exclusive access to a brand CEO and Designer, as well as private viewings of collections are a few of the perks that HNWI have been used to.  A fine line of balances of attention and services will have to be closely developed and managed to treat both the HENRY and the HNWI. 

Specific characteristics of a HENRY is that they consume for prestige and social status. They won’t sacrifice an expensive lifestyle, staying in luxury hotels and eating in the best restaurants, but they will budget at home, such as shopping at Costco or TJ Max, in order to do social status shopping.  

Saddled with home loans, student debt, private schooling and expensive holidays, this group continues to spend like HNWI’s but may not attain HNWI status.  They are digital savvy, love online shopping and are big spenders. According to Deloitte’s report, a typically millennial HENRY consumer household will spend some US$86,000 per year on luxury goods. 

The “NRY” part of the acronym is not to be forgotten. “Not Yet Rich” means they have aspirations to be so in the future but at the same time live as though they are currently already rich. Status and social currency can be a big driver of their spending patterns. Think about the HENRY consumer who pre-Covid attended a fashion show of a top luxury brand in Paris or Milan; often in the preparation of this highly coveted trip many of these HENRY’s will spend upwards of $50k preparing their outfits for the three day trip but then fly economy to get to Europe.   
According to Haven Financial Group their top purchases are related to: diet, weight loss, exercise memberships, boating and sailing, entertainment, online shopping, automobiles, vacations.

Ultimately, to attract these customers brands should treat the HENRY’s as if they were HNWI’s, given they do spend as if they have a high net worth. To reap the rewards that this demographic can bring, creating a segmented and tailored approach is vital. Offer best in class service and expect to give experiences as part of the relationship building process. Authentic relationships will sustain and bring long term value to both the brand and this special consumer. The millennial HENRY, while on the path of trying to become a HNWI, is going to be around for a while and therefore worth focusing on.