Conventional wisdom in the US has long been that 30-somethings want a house, a car and clothing suitable for work. Fifty-somethings want a vacation home, jewelry and a cruise.
As the Baby Boom generation became more important, therefore, an investor wanting exposure to consumer spending should have shifted away from homebuilders and carmakers and toward high-end specialty retail, luxury goods and hotels and cruise lines.
Of course, there were other secular forces at work, as well–the move from the cities to the suburbs and the dismembering of the traditional department store by specialty retail, just to name two.
Today we’re in the early days of another significant demographic change. Millennials now outnumber Boomers in the US. Millennials only earn about half what Boomers do. And they were hurt much more severely than the older generation by the recession. But they’re on the up escalator, while Boomers as a group will see their economic power wane as they retire.
Playing the aging of the Boomer generation had two aspects to it, one positive and one negative. The positive side was hard–finding the small, relatively obscure companies like the Limited or Toys R Us or Home Depot/Lowes or Target or (later on) Coach that would catch the fancy of the Baby Boom. The negative side was easier–avoiding the losers who didn’t “get” what was going on. These included American carmakers and the department stores.
In 3Q15 corporate results, we’re already beginning to see the new generational change begin to play out. Home improvement stores are doing surprisingly well. Large retail chains are reporting relatively weak results. What strikes me about the latter is that the worst-affected seem to be the most heavily style-dependent and the firms that have put the least effort into their online presence. In contrast, I’m struck by how many small online, even crowdsourcing, alternatives to bricks and mortar there now are to buy apparel.
How to play this emerging trend?
The negative side is easy– avoid the potential losers, that is, firms whose main appeal is to Boomers and companies with a weak online presence.
The positive side is, as usual, harder. Arguably, many of the winners–Uber, and the sharing economy in general being an example–aren’t yet publicly traded. Absent a pure play, my best idea is to invest in the winners’ onlineness. The easiest, and safest, way to do so is through an internet or e-commerce ETF.
One other point: for many years, economists have tracked the activity of Boomers as a way to estimate the health of the economy. To the degree that they, too, fail to adjust quickly enough, their assessments, like department store sales, may understate growth momentum.