Rich Economy/Poor Economy | The first in a two-part look at how the income gap between has impacted local businesses.
Photo/Edd Cote
FIRST GEAR: Marc Lisenco, general sales manager of Wagner Jaguar of Boylston, says even the wealthiest of clients are more likely to try and bargain down the price of a car.
Photo/Courtesy
WITH STYLE: Kim Long, owner of Fashion.Life.You, says wealthy New Englanders just don't spend like their counterparts in other regions of the U.S.
Massachusetts has a longstanding reputation as a liberal state, the sort of place where you might expect the old adage that the rich get richer and the poor get poorer not to apply. But between the late 1980s and the mid-2000s, the income gaps between the rich and the poor, and, to a lesser extent, between the rich and the middle class, grew enormously.
In fact, according to a report by the Washington, D.C.-based Center on Budget and Policy Priorities and the Economic Policy Institute, the rich-poor disparity grew faster here than in any other state except Connecticut and Rhode Island.
The good news is that the gap grew only thanks to the rich getting richer. The bottom 20 percent of families saw their incomes remain essentially flat in inflation-adjusted terms, while the top 20 percent grew by 44.4 percent, and the top 5 percent gained 89.5 percent. The incomes of the middle 20 percent rose a relatively modest 16.2 percent.
Since the recession, everyone has lost ground but there’s no doubt the income gap remains much bigger than it was when Reagan left office.
In this two-part series, we explore how businesses that cater to the rich and the poor have changed over the past quarter-century, and how the increasingly unequal economy looks to them.
As general sales manager of Wagner Jaguar of Boylston, Marc Lisenco sees firsthand how the rich are handling the recession. He’s seen customers in middle management lose their six-figure jobs, striving middle-class families lose the lines of credit that allowed them to lease cars beyond their means. And he’s seen some very rich people quietly buy new cars in the same color as their old ones.
“They’re just keeping their heads low,” Lisenco said. “A lot of people are benefiting from building in China or manufacturing and outsourcing and they still have good paying jobs. So those people, they’re keeping cool, but they’re spending money.”
There’s no doubt that the rich prospered in Massachusetts over the past quarter-century, with companies in high technology and other industries prospering and creating overnight stock-option millionaires. Incomes rose most rapidly for families in the highest economic brackets, with the average inflation-adjusted income for those in the top 5 percent nearly doubling from $163,783 in the late 1980s to $310,440 in the mid-2000s.
Yet companies that offer high-end services say the effects of the growing wealth for their businesses have been mixed. They may have a larger base of potential customers to draw from, but the rich aren’t necessarily as free with their money as they once were. Even the wealthiest consumers have, in many cases, curbed their spending over the past few years. And insecurity about the economic future has crept up to those worth millions.
Wealth: Homegrown And Imported
Kim L. Long started her career in the 1980s, working for luxury clothing brands in Boston. Now, as the owner of Fashion.Life.You in Shrewsbury, she helps people — many of them wealthy people — develop a style and personal brand.
Long said she’s seen wealth flow into Greater Worcester over the past few decades thanks both to Boston-area workers buying homes farther west and to new MetroWest companies like Staples and EMC springing up.
“Those kind of success stories created a lot of wealthy people in Massachusetts because they all had stock options, they went public and became overnight millionaires,” she said.
But Long said people with money in Central Massachusetts aren’t necessarily spending it the way you might think. She said market research by retailers hasn’t supported the idea of opening high-end stores like Williams-Sonoma or Crate and Barrel right around Worcester. Even The Natick Collection suffered from what she calls New Englanders’ “very pragmatic approach to spending money.”
“It didn’t turn out to be the success that they thought it would be, especially the high, high-end stuff,” she said. “New Englanders just don’t typically flock to that kind of thing.”
Long said when she talks to fellow fashion consultants in other parts of the country about the clients they serve, she can see why designer stores may not do as well here.
“They’re always well dressed compared to New Englanders,” she said. “We’re much more casual.”
Tom McDavitt of McDavitt Wealth Management in Worcester said that over his 27 years in the industry he’s also seen more people enter the ranks of the wealthy. Like Long, he said part of that is a result of locally based companies’ exponential growth. McDavitt said that in the late 1990s he had many clients with huge amounts of stock in the then-booming technology sector, and he helped many of them diversify their holdings before the dot-com crash in 2000.
But McDavitt said the biggest growth in the total wealth he deals with has come from 401(k) accounts.
“That’s where you’re going to find most people’s money these days,” he said.
Social Insecurity
Where six-figure investment accounts were a rarity for his clients in the 1980s, McDavitt said they’re common now. But that change comes with headaches: in general, 401(k)s replace pension plans, which once guaranteed retirees a set income for life.
McDavitt said the “non-pension generation” is starting to retire now, and they’re far more anxious about the future than their predecessors were.
“There’s a genuine fear of outliving their money,” McDavitt said. “I think in the pension-generation people never feared running out of money, and life expectancies weren’t as long.”
Now, he said, he regularly get clients wanting to plan for their late 80s, 90s and beyond.
McDavitt said his usual advice for those looking to retire is that guaranteed comfort for life takes a nest egg of $2.5 million.
Yet even people with millions in the bank aren’t always relaxed about the way they spend their money, especially since the recession began.
Long said that in the past few years she’s found more penny-pinching among the rich.
“I have some clients who are very, very well off, and I’ve watched them make comments about the price of something which is very low compared to what their net worth is,” she said. “And it surprises me they would say, ‘That’s 25 dollars?’ ”
Long said the wealthy are now concerned about good quality and good service, in sharp contrast to what she saw a few years back.
“In a lot of cases, the easy money that was coming in in the last decade kind of created a scenario where it didn’t matter if the people in the luxury brand market were that tuned in to their client customer base,” she said. “People were just buying it because they had the money to. Life was good and money was flowing, so it really didn’t matter.”
Lisenco said his customers at the Jaguar dealership are also more price conscious thanks to the recession.
“I think even the person where if they lost $2 million it wouldn’t change their lifestyle — looking from the outside in it wouldn’t change their lifestyle — mentally it changes their life,” he said.
Even over the longer term, Lisenco said his customers have become more aware of what things cost. In part, he said, it’s due to information about prices easily available on the Internet. But he said it’s also about an attitude toward shopping. Years ago, he said, when wealthy customers eyed a nice car, “They liked it, they wanted it, they bought it. Now, it’s more about the deal, it’s about the win in negotiations.”
If the wealthy have taken tighter hold of their wallets over the years, Lisenco said he’s also seen many more people getting into the market for luxury cars. That’s a result partly of new wealth and partly of the advent of consumer leasing in the mid- to late 1980s.
Of course, easy credit also put luxury goods within reach of more people over the past two decades, but that’s changed in the last few years.
“The people who stretched are gone,” said Lisenco.
That leaves the divide between the rich and everyone else more starkly exposed. And the divide worries Lisenco.
“People are very greedy,” he said. “People were not so greedy back in the ’60s, ’70s.”
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