The Truth About HENRY
The inconvenient truth about marketers' demographic du jour
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HENRY is an acronym that stands for High Earner, Not Rich Yet. The term was invented in 2003 by a writer for Fortune Magazine; it was used to illustrate that marketers’ monolithic vision of what it meant to be “rich” wasn’t universally applicable.
A HENRY household earns between $100,000-249,999 USD annually, while a truly “rich” household is earning $250,000+. A HENRY household doesn’t have the disposable income to purchase luxury goods regularly, but they aren’t constrained to Walmart, Dollar General and TJMAXX (although they may shop at one or all of those places).
Pamela Danzinger, a market research expert specializing in the luxury market, has been making the case for HENRY since the 2010s. In 2015 she published what is potentially the first book on the subject: What Do HENRYs Want?, and she has been urging major luxury brands to focus on this cohort for close to a decade.
Her thesis is one of simple demographics: growth in the US luxury market never recovered to pre-2008 recession levels, and probably won’t for a while. Wealthy households are about 2% of the population but drive 10% of US consumer spending; they over-index by 5x.
HENRY households are about 18% of the population but drive 40% of US consumer spending; they over-index by only 2.2x, but their large numbers drive almost half of all consumer spending.
Therefore, luxury brands should target HENRY to maintain growth in the US market.
HENRY has also become a fixation of the Direct To Consumer and Modern Luxury movements. The middle class and the distribution channels that serve it have been eroding over the past decades. These brands have strategically positioned themselves between Sears and Bergdorfs to provide the HENRY consumer with more of what (s)he values and less of what (s)he doesn’t.
Per Lean Luxe, one of several publications that closely monitors the HENRY cohort:
Pamela Danzinger and Lean Luxe seem to agree that HENRY values:
Price:Value ratio over premium or top quality
Convenience and consumer-centric approaches to selling
An authentic brand narrative aka a Raison D'être that passes the bullshit test
Experiences over things—consumer products must put thought into every phase of the purchase journey to make it feel like an experience
This seems like an eclectic mishmash of traditional working class values and luxury brand positioning. You have the thrifty emphasis on value and practical disregard of logos, running head first into the demand for “experiences” that mirrors Pure Luxury’s imperative to address all five senses.
But the values and aesthetic codes of HENRY are simply bourgeois mass consumerism repackaged for a smaller addressable audience. HENRY myopia ignores a wide swath of consumers with disproportionate spending power, while neglecting the values and aspirations of the consumers most likely to drive disproportionate spending power in the future.
The cornerstone of HENRY-centric strategies from both modern and traditional luxury marketers are built on two false assumptions:
HENRY is a monolith and
HENRY is on the path to becoming rich
HENRY is Not A Monolith
When we talk about HENRYs and their new consumer values, it is assumed that we’re talking about millennials and (maybe) zoomers. The starting point for the Millennial generation varies by source, but Wikipedia says that 1981 is commonly accepted, so let’s go with that. The oldest Millennial is 39 years old.
According to 2019 census bureau data, only 31% of households earning $100-199K are under 40, and only 23% of households earning $200K or more are under 40. The Census Bureau breaks out HHIs a bit differently than the traditional HENRY definition.
So we have the first sub-segment within the $100-249K HHI band: young vs old(er) HENRYs.
Next, let’s look at a sample HENRY monthly budget developed by 2PM by polling close to 2000 consumers between 23 to 32 years old, living in Dallas, Los Angeles, New York, or Chicago.
One major line item is missing: debt service. The average American is carrying a balance of $38,000 in personal debt (excluding mortgages), and that average increases to $42,000 for members of the Millennial Generation.
Major sources of debt include student loans—a college degree is often a requirement for landing a six figure job—medical debt, and using a credit card to cover gaps between income and expenses.
This creates a further segmentation within the young HENRY cohort:
Those who followed the traditional college route vs those who did not
Those who reached the HENRY HHI benchmark with and without debt
We can distill this into three groups: people who pursued highly competitive and credentialed fields of work (1)with and (2)without family help, and then (3)a group of bootstrapped outliers.
But the prescription for “what HENRY wants” (or is willing to pay a premium for) treats this cohort as a single group with a single persona:
If you work in marketing, you can probably envision this person. And if you can’t, 2PM has been kind enough to literally draw you a picture (link is paywalled, but worth it).
This persona and the set of values it represents ignores a wide swath of consumers who actually fall into the $100-249K household income range.
And that is a problem because...
HENRY Is The New Middle Class
If you live in a part of the US with traditional seasons, you probably noticed that the days are getting shorter and there is a chill in the air. But remember, the longest day of the year was June 21st; the days have been getting shorter for three months now.
We’ve only started to notice it because the earth and its atmosphere are large objects. It takes a long time for shorter days to create a change perceivable to the human senses.
When we develop strategies that hinge on consumers’ behavior even five years in the future, we need to base those strategies on similarly “large objects” in the macro universe. Consumer tastes and preferences are not large objects; COVID-19 illustrated that point clearly, as did the financial crash of 2008 and other generation-defining events before that.
COVID-19 caused consumers to switch brands and retailers at a rate typically only seen during major life transitions like marriage, childbirth and retirement. And whether a given brand fell on the positive or negative end of that disruption was mostly pure luck—some DTC brands had their best months ever while others ran their first markdowns ever.
This is the fatal flaw of “leveling up” strategies for brands that don’t already have a strong base of wealthy, stable consumers. Generational luxury brands with a strong base of consumers who have moved far beyond the $250K HHI benchmark can afford to “level up” younger, lower HHI consumers over decades. Modern Luxury brands, or any other consumer brand without a loyal, wealthy core customer group cannot survive on this strategy.
Economic and geo-political upheaval will take you out before your younger, lower-spending consumers have a chance to level up. Because marketers are now responsible for traffic driving and brand building, the acceptable average payback window for customer acquisition investment is six months tops.
It takes a very prescient, talented and low-ego organization to keep a consumer brand relevant long enough to maintain a decade of loyalty. The brands that do stay relevant and create decades-long customer relationships are usually built on a strong foundation of product quality that never wavers, and they are not strongly tied to a single cultural moment.
The best way to poke a hole in some of these cognitive biases related to customer behavior is to step back and examine our own behavior from a pure consumer perspective.
Make a list of brands you have purchased consistently over the past ten years. Now make a list of all the brands you’ve purchased from over the past six months. What percent of total is your decades-loyal list, and what product categories are included? That is your “window of opportunity” for leveling up your customer over multiple years.
The brands I’ve purchased consistently over the past 10 years? Apple, Diet Coke, Adobe (creative suite)...that’s it. That’s all I can think of off the top of my head. Two of those are best in class tools and one is a poorly-regulated addictive substance. This exercise would be easier if I was actually at home right now to review all the stuff I’ve bought, but due to COVID-19, I’m not. Damn that inconvenient macro volatility!
“Large objects” in the macro world are pulling the “top” higher and higher each day—so high that we need an infographic to conceptualize it. Within this stretched distribution, HENRY is simply the new middle class consumer, and modern luxury aesthetics and values are a way to tell this group what they should want without alerting them to the fact that they are being told.
The competitive/credentialed HENRY cohort is more likely to rely on its own network to sustain its position. Cash flow is maintained and (hopefully) grown over time through a series of repeated games. The network develops its own norms and status codes, and self-policies.
The bootstrapped cohort either experiences major liquidity suddenly (think: celebrities, startup exits) or builds it over time in a way that is diversified across many different demographic cohorts. This group is more likely to march to the beat of its own drummer or adopt the status codes of its niche.
I’ll always remember this article in GQ where a journalist interviewed six different people living at six different levels of income. The wealthiest guy got into a “boring business” early (self storage) and was spitting hot takes that would get most public figures, and most HENRYs for that matter, in hot water.
As you moved down the ladder, the interviewees became more self-effacing and more likely to partake in consumer spending that aligned with the prevailing notions of “good taste”. Further down the ladder, but less far than you would think, there wasn’t much disposable income to go around.
Mass consumer notions of taste, untethered from any study of aesthetic principles or understanding of what it takes to make the thing, are simply a way to narrow the cone of uncertainty around trends and preferences within consumer spending.
So the premise of a “Modern Luxury” brand that targets HENRY as the core customer, with economics that lean on growing spend over time as this customer becomes rich, are fundamentally flawed.
And we have seen this in the numbers—the most successful DTC exits have been CPG brands with unique product positioning/value props, while “brand first” DTCs that have borrowed heavily from the luxury/lifestyle playbook have struggled to break a profit.
In Search Of Large Objects
If you’re embarking on a “brand first” approach to consumer product development, where the product itself is not differentiated, you need to look to the large objects to inform your core values. You need to study the psychological conditions that shaped the cohort, and study how their aspirations were shaped.
I don’t think a lot of DTC brands targeting HENRY’s took this approach. They applied popular aesthetics to categories that had not received much aesthetic love in the past. But anyone can do that, and now everyone does.
Or they built product categories around the “symptoms” of millennial psychology. We like to travel, we like to use Instagram…but why? Good creatives channel these truths into products instinctually.
Our grandparents sought out conformity as the balm to generational trauma (WWII), and purchased space age appliances on installment plans as their form of escapism—reach the moon and start over, away from the threat of mutually assured destruction.
Our parents sought out individuality as the balm to generational trauma (cold war, Vietnam), and lit up the mall with consumer credit as their form of escapism—immerse yourself in another world and become the person you envisioned yourself to be, even if you weren’t.
Our generation sought out hyper-individuality as the balm to generational trauma (9/11, recession). If we could convince ourselves we were special, then maybe the threat of looming macro factors would not apply to us. How can my life be fucked if I am paying $14 for an avocado toast?
With each successive generation, the total addressable audience for consumer escapism has gotten smaller and smaller, while our economy’s dependence on this type of spending has gotten stronger and stronger.
If you believe time is cyclical, then Gen Z will return to conformity and futurism as the balm for their own generational trauma. If you believe time is linear, then Gen Z will pursue an even more niched form of individuality seeking. Both of these hypotheses may be true. But brands without a solid foundation will not last long enough to find out.
What I Wrote Since Last Time
I don’t really write anymore outside of the newsletter. I found that I was feeling compelled to shape the approach and subject matter to what would get pickup on various platforms, which wasn’t fun. So this section will go away next week.