NEOs are the Recession Busters
Australia's 4 million and America's 59 million NEOs are the recession-busters. While their, and everyone else's confidence took a rare hit when Wall Street darling Lehmann Brothers collapsed in September last year, it recovered by Christmas and is leading other consumers out of the global gloom.
NEO consumer-confidence runs an average of 15-20 points above the general population in the US, Canada and Australia. And while the global economic meltdown has hit NEO asstes by $150,000, that's only 10 per cent of their average asset holding. So they're not blinking.
NEOs are bucking the recession trend. Yes they're temporarily out of the share market, and yes they're buying less stuff, but NEOs are spending more on so-called nesting and on experiences that enliven their spirits.
For example, while traditional hotel brands drop room-rates and suffer lower occupancy, Canada's luxury Clayoquot Wilderness Resort is brimming with NEOs from the US and Australia paying the full $2,000 per person per night - to stay in a tent. Mind you, it's a glamorous tent in an eco biosphere with meals prepared by one of North America's best chefs.
NEOs are paying for yoga classes and private trainers; they’re drinking fewer glasses of wine but buying better quality wine and spirits; they’re travelling to places that deliver authentic experiences; they’re investing in a mix of liquid assets and smart opportunities in an opportunistic market; they’re paying a premium for premium advice when it counts; and they’re escalating their use of the Internet because it’s where they control the levers.
This has all happened before. Take premium wine sales during the last recession: a retail wine study published by the US National Bureau of Economic Research found that the premium wine industry was significantly more robust during the economic crisis than the cheaper wine sector. The report attributed any overall decline in wine consumption to a reduction in spending by lower discretionary spenders (Traditionals).
At the end of that slump, Goldman Sachs reported that while less expensive wine had been sluggish and declining during the year, US premium wine sales had been booming with the $US10-$US14 per bottle category continuing to grow at double-digit growth.
NEOs stay strong and keep consuming during recession while Traditionals just stop spending. During the last recession, NEOs out-consumed their more traditional cousins 2:1.
And they're doing it again this time round.
NEOs, while only one quarter of the population, represent the majority of the discretionary spending power of the economy and drink four times more premium and super premium wine than anyone else. Almost all, 93 per cent, are in the top third of discretionary spenders in the economy.
They also buy twice as many books, fly three times more frequently, eat out at a restaurant five times more often, utilise phone banking five times more often, and dominate credit card use, risk insurance, investment lending and high interest online savings accounts.
Because they're more confident about their own finances - their own personal balancesheets - they have consistently higher consumer confidence. That confidence ensures their appetite for high discretionary consumption continues unabated in the face of global recession.
It is however important to recognise that while their spending behaviour is resilient, it will shift under extreme adversity. High-end luxury brands are being abandoned as they shift to shoring-up their psyche and their nest. They have shifted their money out of equities into online cash investment accounts; they're redesigning and extending their homes; they are planning to buy a new home or investment property when prices and interest rates reach an optimal alignment. Their money is active in every economic climate. They just keep moving it to the next sweet spot.
Confidence makes NEOs recession-busters. And this is what makes the conventional wisdom of demographics and traditional marketing out of date.
(Data Source: Roy Morgan International | Social Intelligence Lab)