Tag Archives: Millennials

US retail inventories

November 30, 2015 By in Millennials vs. Baby Boomers, Retail, Uncategorized Tags: , , Leave a comment

Going into the end of year holiday shopping season, inventories of US merchants–especially of apparel–seem to be unusually (i.e., too) high.  I don;t think this is the case across the board.  It appears to be especially true of department stores, however.

I think this oversupply is partly caused by a reaction to last year’s troubles at the West Coast ports, meaning that merchants made their buying decisions early, to avoid running out of stock if labor problems resurfaced.

But I also think a couple of mindset issues are at work, as well.

–the recent strategic shift Wal-Mart announced to emphasize the internet suggests to me that throughout established retail, high level, long time executives who made their careers controlling the logistics of servicing physical stores have been in denial about online.

–in a housing upswing, the typical pattern around the world is that people who are establishing new households, either by renting or by buying, find the money to pay the rent/mortgage, paint, decorate, furnish…by shifting spending away from other, less immediately pressing, items.  Like apparel, for example.

The only time I can recall this reallocation not occurring is in the US, during the period from the mid-1990s to the crash in 2008.  That’s when homeowners were financing consumption by borrowing against the equity in their houses.

That’s no longer the case.  We’re back in a more normal environment, where a dollar spent on furniture or hoe improvements means a dollar less to be spent on clothes or toys (except for Star Wars, of course).

My thoughts:

It’s easier to adjust from having made the second mindset mistake than the first.  Revenues may not show who has made either; profits (or a lack of them) will.

The idea that as investors in retail we have to play the housing cycle as a key determinant of profit growth is another aspect of the Millennials vs. Boomers phenomenon in the economy.

segmenting Millennials

November 25, 2015 By in economics, Millennials vs. Baby Boomers, Millennials vs. Boomers, Uncategorized Tags: , , , , , Leave a comment

I got an e-“book” from NPD, the retail data and analysis people, the other day that argues we as investors shouldn’t look at Millennials as a coherent group, but rather segment them by age ( I wrote “book” because it’s ten pages long).  Here’s what it says:

general

Millennials are an important demographic group in one sense because they’re the largest segment in the US by age, having recently passed the Baby Boom in size.  More important, they’re in the ascendant economically, while Boomers are gradually fading into retirement, with attendant lower incomes and weakening propensity to spend.  In addition, 13.8% of those 18 -29 are either unemployed or out of the workforce.  This suggests that this group will show better than average income–and spending–growth as Boomer retirement and economic expansion make more jobs available.

Millennials are projected to account for a third of total US retail spending within the next five years.

segmenting

NPD divides Millennials into younger (18 – 24) and older (25 -34).

Older Millennials:

74% white

40% married (44% have been married at least once)

40% have children

have more money

are less optimistic

favor Donald Trump.

 

Younger Millennials:

68% white

10% married (20% have been at least once)

10% have children

have less money (many are still in school)

are more optimistic

favor Bernie Sanders

 

Differing retail habits on Friday.

 

 

the holiday retail season: Millennials vs. Boomers

November 17, 2015 By in Amazon, Facebook, internet, Millennials vs. Boomers, Retail, stock market Tags: , , , , , , , , , , Leave a comment

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

May 11, 2015 By in earnings conference calls, Recent Market Action, Retail, Stock ideas, supermarkets Tags: , , , , , , , 1 Comment

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?

preliminaries

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

March 27, 2015 By in Millennials vs. Baby Boomers Tags: , , , , 2 Comments

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.