the holiday retail season: Millennials vs. Boomers

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.

Whole Foods (WFM) and Millennials

What should we make of the announcement by WFM that it’s launching a new chain of supermarkets–smaller stores, selling less expensive merchandise, targeted to Millennials?


I was an early investor in WFM.  My family shops there on occasion.  But I haven’t followed the company for years.

Over almost any period during the past decade, the traditional supermarket chain Kroger (KR) would have been a better investment.

The stock’s strong performance from the depths of the recession comes in part from its starting point–a loss of over 3/4 of its stock market value and the need for a $425 million cash injection from private equity firm Green Equity Investors.

my thoughts

new brand–As I once heard a hotel marketing executive say, “You don’t start selling chocolate ice cream until the market for vanilla is saturated.”  Put a different way, if there’s still growth in the tried and true, it’s a waste of time to segment the market.  Therefore, the move to a second brand signals, at least in the minds of the managers who are doing this (and who presumably know their company the best), the end to growth in the first.

less expensive food–Pricing and brand image are intertwined.  Paying a high price for goods can confer status both on the product and the buyer.  Lowering prices can do the opposite.  It seems to me that WFM judges it can’t lower prices further in its Whole Foods stores without risking the brand’s premium image.  It may also be that WFM thinks it needs the pricing to pay for the big stores/prime locations it already has.  That would be worse.

smaller stores–This is less obvious.  The straightforward conclusion is that WFM has exhausted all the US locations where the demographics justify a big store.  My impression is that this happened years ago, however, when WFM began to decrease the square footage of its new stores.  On the other hand, it may also be that in their search for “authenticity,” Millennials react badly to big stores.

Millennials–Millennials and Baby Boomers are each about a quarter of the population.  Boomers have about twice the income of Millennials.  But as Boomers fade into retirement, their incomes will drop.  Millennials, in contrast, are just entering their prime working years, when salaries will rise significantly.  So targeting Millennials makes sense.


It’s not surprising that WFM shares dropped on the news.   It signals the end of the road for the proven brand and a venture into the unknown for which no details have been provided.  Why announce this now in the first place?

Millennials and shoes

For a while, I’ve been convinced that my search for secular growth consumer stories should shift from Baby Boomers–an amazingly rich lode to mine for my entire career–to Millennials.

Two reasons:

–Millennials are now more numerous than Boomers, and

–Millennials’ incomes, now only about half that of Boomers, are risng, while Boomers’ are falling as more enter retirement.

So I’ve been on the lookout for information about trends in Millennials’ consumption.

The other day I found one from the NPD Group blog.

It’s shoes!!

The average American–man, woman and child–buys 7.5 pairs of shoes a year.  The business has been growing by about 3% a year since the economy’s low point in 2009.  Total annual retail footwear sales in the US are now around $54 billion.

According to NPD, Millennials in the US spent $21 billion on footwear, about 40% of the total, last year.  That’s up by 6% over their outlay in 2013, or triple what the industry growth was.  In addition, Millennials were a bigger factor in the $100+ shoe segment, where they spent 12% more than in 2013.

Now to find a pure play.



failing toll roads in the US-why?

I’m convinced that studying the behavior of Millennials –and in particular how it differs from previous generations’–will ultimately produce a treasure trove of equity investment ideas.

So my ears perked up when I began noticing recent reports of continuing failure of toll road investment projects that had been in vogue ten years or so.  Many were packaged by Australian investment bank Macquarie and/or Spain’s Ferrovial.

Chapter 11 filings have been attributed in the media to a sharp slowdown in total miles driven by Americans since 2007 (“…largest decline since World War II,” said one article).  Millennials’ aversion to autos and the suburbs are the supposed causes.

A quick check shows that’s not exactly right.

The Federal Highway Administration’s monthly Traffic Volumes Trends indicates that total miles driven by Americans has fallen from the peak of 3.03 trillion miles in 2007.  But the present level is still 2.98 trillion, a seven-year decline that totals only 1.65%.  Yes, this is a change from the pretty steady rise of just over 1% annually during the prior couple of decades.  But it’s hard to image that worst-case planning didn’t allow for a flattening out of traffic volume.

Two other characteristics of these deals stand out to my, admittedly cursory, glance, as being much more important:

–they’re very highly financially leveraged, and

–they contained a ton of derivative protection against rising interest rates–which backfired horribly, adding significantly to the already-high debt burden.

The deals also appear to have suffered from wildly overoptimistic projections of future road usage, although these were likely less linked to project survival and more to the possibility of above-average gains.

In any event, my main point is that this is not a story of differing Millennial behavior.  It’s all about bad project design and mistaken derivatives overlays.




long-term market themes (iv): Millennials vs. Baby Boomers

In a population of roughly 300 million in the US, about a quarter consists of Baby Boomers, born in the years immediately following WWII.  Another quarter are Millennials, born in the 1980-90 period.

During virtually my entire career, the economic behavior of Boomers has had the most important demographic impact on the stock market.  But the leading edge of this group is already entering retirement–and being gradually pushed off the Wall Street stage by Millennials who are just entering the workforce in force.

This phenomenon is already having an impact on the stock market, I think.  But we’re probably only in the early stages of what will be an increasingly important change.

Two thoughts:


1.  The standard economic toolkit for dealing with recession is to shift economic power away from savers (Boomers) and toward spenders (Millennials).

To some degree, this influence has been offset in the first post-Great Recession years by the difficulty Millennials have had in finding jobs as they finish school.  But employment is becoming progressively easier to come by.  And we know the Fed is planning on keeping an emergency recession-fighting regimen in place for at least the next few years.

Speaking in over-simple terms, the emergency plan of any central bank is to make interest rates negative in real terms.  During the emergency (we’re now ending year five) the elderly and the wealthy, who tend to save rather than spend and who have a strong preference for fixed income, lose out in a serious way.  Their wealth diminishes in real terms as they receive interest payments on their  savings that are less than the amount that inflation subtracts from their purchasing power.

Younger, less affluent people, on the other hand, get free lunch.  They can borrow at very low rates, sometimes less than the rate of inflation.  In the latter case, they get free money.  They can also easily be in the situation where, say, the condo/house they buy goes up in value, while the real value of their mortgage shrinks’

By taking money away from savers and putting it into the hands of people who have a strong tendency to spend, the government spurs economic growth.  Not fair, maybe, especially to Boomers, but that’s the way the system works.

Advantage:  Millennials.

the longer term

2.  Younger people want different things from what their parents have.

Some of this is, depending on your perspective, either the perversity of youth or boldly striking out in a new direction.  My parents lived in the suburbs, so I’ll live in the city.  They have PCs and flip phones (ugh!), so I’ll use tablets and smartphones–and I’ll become a social media guru.  They read newspapers, I’ll use the internet…

There’s also a stages of life component to this.

–Twenty- or thirty-somethings buy houses, furniture…, cars and suits (or other work clothing).

–Sixty-somethings buy jewelry and cruises.  They downsize their houses and move to low-tax warm-weather locales.  Or maybe they retire to the vacation house they bought ten years ago.

For my entire investment career, the changing purchasing patterns of Baby Boomers have been perhaps the most important factor in figuring out how to play the Consumer Discretionary sector–which is arguably the single most important one for a portfolio manager to outperform the S&P 500.

I think it’s still possible to hitch your star to the Baby Boom and outperform.  But not for much longer, as the Boom wanes and Millennials wax.