In 2010, many global financial markets performed well, albeit growing at more modest rates than the sharp rebounds seen in 2009 after 2008’s staggering losses. The number of HNWIs and their wealth also grew moderately, with HNWIs remaining more conservative than before the crisis but willing to be opportunistic in seeking yield. The global economy returned to growth, driven by strong activity in emerging economies, most notably fast-growing Asia-Pacific nations such as China and India.

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How to Capitalize on the Momentum of Change

Global wealth climbed by 8.0 percent in 2010 to $121.8 trillion, or about $20 trillion above where it stood during the depths of the financial crisis. the rate of growth has slowed since the sharp turn-around in 2009 and was below the pace set during the precrisis boom–from year-end 2002 through 2007–when wealth grew at a compound annual rate of nearly 11 percent. Still, the outlook remains upbeat. Global wealth is expected to increase at an annual rate of nearly 6 percent over the next several years, with exceptional growth in emerging markets.

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• Attitudes about wealth, worth and the use of wealth
• Estate planning, financial planning and intergenerational wealth transfer
• Investment outlook and tax policy
• Relationships with financial advisors

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Issues Driving Charitable Activities among Affluent Households

The 2010 Study of High Net Worth Philanthropy, sponsored by Bank of America Merrill Lynch, offers new insights into the philanthropy of wealthy donors. Conducted by the Center on Philanthropy at Indiana University for Bank of America Merrill Lynch, this year‟s research follows an initial landmark study published through this partnership in 2006, and another study done in 2008.

The 2006 and 2008 studies – which have become leading resources for the philanthropic sector for understanding the philanthropic behaviors of wealthy donors – are the largest surveys of wealthy Americans ever conducted on this topic. The new 2010 study is the result of random mailing to 20,000 households in high net worth neighborhoods across the country about their giving in 2009. This study reflects the attitudes and behaviors of more than 800 respondents throughout the United States with household income greater than $200,000 and/or net worth (excluding the value of their residence) of at least $1,000,000. The average wealth of respondents was $10.7 million. Half of those who responded had a net worth between $3 million and $20 million.

New in 2010
The latest study follows much of the same methodology as the initial 2006 and 2008 studies in order to identify key trends and to provide deeper insights into the motivations and attitudes of wealthy donors. For nonprofit professionals, donors, and charitable advisors, this study offers new information about how high net worth donors: involve others in their giving and make decisions about charitable giving within their household, encourage family traditions around charitable giving, and approach investment risk with their personal and philanthropic assets. The 2010 report also reveals new information about the level of confidence high net worth individuals have in societal institutions to solve domestic or global problems, and their awareness of philanthropic tools to advance social or charitable goals.

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We have been pointing out on a regular basis that the global economy was heading toward a period of slower growth in 2011, followed by more robust ascent in 2012. Our forecast of better days ahead, particularly for late 2011 and for 2012, was initially predicated on ITR’s understanding of business cycles and more recently on leading indicator signals. However, professed concern over the viability of the recovery or the lack of economic vitality that characterizes the consumer segments of this recovery has prompted the Federal Reserve to embark on another round of quantitative easing, dubbed QE II.

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–by Jean-Noël Kapferer
The European Business Review

The economic recession has hit luxury, as most other sectors. Many luxury brands have reeled by lack of clients and cash. Since then, many experts have predicted that post crisis luxury would be of a totally different kind. It was the end of luxury, as we knew it, the end of bling-bling, of prominent logos and high prices excesses.It is chorused everywhere in the media that this new luxury will be modest, bespoke. It should be the demise of conspicuous consumption.

For the author, luxury companies would be very cautious in giving faith to this unanimous and trendy opinion, especially if it is backed by cursory polls where respondents tend to give socially acceptable answers. Based on a deep understanding of the dynamics of luxury and on consumer research worldwide, one thing is sure: conspicuousness is here to stay, of course with differences within the luxury population. The future belongs to companies who understand this need for status and adopt a true luxury strategy, very different from a premium strategy. Those who already did it are the ones, which in fact profitably grew during the crisis.

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Summary …

Part 1 What’s going on in the luxury market

• Recession created resentment of wealth
• Consumers are shying away from overt displays of status
• There is willingness to spend on luxury if it is toned down and genuinely deserves its luxury status
• Bling was already on its way out before the recession
• The market crash accelerated the association of overt luxury with the fast-buck culture
• People are making more discriminating luxury purchases and will often compensate by budgeting elsewhere
• There is a new emphasis on the personal relevance of brands
• Status is still important – but it is only to be recognised by those in the know
• There is a new consumer mindset: more discriminatory, making integrity an important factor

Part 2 How to address the new trends

• Brands must truly fulfil luxury criteria to justify purchase
• A marketing ‘message’ is no longer enough; brands now require stories that imbue a purchase with greater meaning
• Stories set a brand apart, but they need to resonate with values and experiences
• It is no longer enough for a brand to tell one story which it projects to consumers
• Brands need to involve consumers who relate on a more level playing field than ever before
• Brands can use online as a tool, not a hindrance, to connect with their consumers
• Luxury brands need to provide multiple stories for their consumers to blend and colour with their own

Part 3 What are the brand stories to tell?

• The story of superior performance: substantiated by how and why it is the best, reassures the consumer
• The story of sophistication: a subtle language that assures the consumer of a shared taste and aesthetic
• The story of craftsmanship: upheld by expertise, time spent, tradition and beautiful design
• The story of collaboration: gives a brand an exciting hybrid story, co-opting the creative partner’s brand attributes, for a collective experience
• The story of exclusivity: imbuing an item with a sense of rarity and exception, which justifies the expense
• The story of involvement: the rising demand for bespoke items builds the status and exclusivity of both brand and consumer
• The story of innovation: keeps brands relevant, particularly those with a heritage story; and a really significant innovation can create a luxury brand
• The story of heritage: not just a name and a date of inception; but a proper history, whether a story of longevity or a cultural immersion
• The story of provenance: if a brand comes from a location famous for that product, that place’s story becomes its own
• The story of ethics: a green or fair trade badge isn’t enough – there must also be an authentic, inspirational or heartwarming tale

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They thought it was all over…
Whatever happened to the sunny uplands? At the end of 2009 and the beginning of this year, it appeared that the global economy was well on its way to delivering a standard economic recovery. No longer does this seem to be the case. Admittedly, the numbers in the first half of this year have offered a welcome improvement in some parts of the world, allowing us to upgrade our 2010 growth forecasts for the likes of the US, Japan and Brazil. Nevertheless, the medium-term prognosis, at least in the Western developed
world, remains poor. Increasingly, the financial economy is leading the real economy. Last year’s financial news was mostly good, with huge confidence effects coursing through the world’s markets. This year’s news has been mostly bad, suggesting that policymakers are struggling to cope with the huge debts that form the bedrock of this crisis.

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Prime, prestige, luxury – all labels applied to the top end of the residential property market in different parts of the world.

While the names may differ, the desire of High¯Net¯Worth Individuals to own and invest in the best property is ubiquitous around the globe. As we discover in our focus on prime property in Asia Pacific (page 18), even the world’s smallest emerging economies, such as Cambodia, are promoting themselves as development hotspots and attracting growing amounts of internal and external investment.

The tangible and straightforward nature of residential property, especially when the outlook for other asset classes is uncertain, explains this attraction. The results of The Wealth Report’s 2010 Attitudes Survey (page 40) clearly indicate that HNWIs, wherever they are around the world, still see property as one of the best assets to own, with most predicting values to grow in 2010.

Furthermore, property is viewed as a strategic investment that can ride out economic cycles. Most of the survey’s respondents said they were interested in long term capital growth from their property portfolios, rather than income.

Despite this globalisation of property as the “must-have” asset class, it would still be wrong to talk about the marketplace for the world’s most desirable properties as a single entity. Just as the labels vary, so do the characteristics of individual markets, not only between continents and countries, but also from city to city and region to region.

Each market – as highlighted by the latest results from our Prime International Residential Index (page 6) – sits in a different part of the economic cycle. Some are booming to the point where overheating is once again a concern, while others are still struggling to shake off the impact of the global recession.

Market drivers are also becoming more nuanced in the light of varying government responses to the credit crunch. Cities like Washington DC and Beijing, as The Wealth Report 2010 Global Cities Survey (page 34) discusses, now find themselves transformed into banking as well as policy hubs, attracting a new breed of property owner.

The last decade witnessed huge shifts in the global property market with many new opportunities emerging. The next 10 years are likely to see even more changes.

Luxury, prime or prestige – however you like to describe them – The Wealth Report 2010 offers a unique and invaluable insight into the world’s most valuable property markets.

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