The baby boomer generation has long been a driving force behind our consumerist economy. Now, many members of that big demographic group appear to be going bust -- a shift could take down several iconic companies and brands.
Lowering the boom on the economy
According to The Wall Street Journal, the baby boomer generation, known for being a large, affluent, optimistic, and spendthrift group, faces a daunting scenario as more boomers approach retirement. The current economic climate paints a far different picture than many boomers perceived when bubbles inflated Americans' sense of wealth.
Boomers are earning less on their investments, have less ability to work because of the poor job market, and struggle with stagnating house values, all of which adds up to economic hardship.
The article pointed to estimates from the nonpartisan Employee Benefit Research Institute: If things don't start looking up soon, three out of every five baby boomers face a serious risk of running low on funds in their retirement.
There are 78 million baby boomers, a powerful, affluent demographic that helped sustain our bubbly economy for years. Given the generation's huge size, any drop in their spending could hurt a lot of consumer-facing companies. In 2008, boomers alone spent $2.65 trillion.
Investors should consider which companies could take a lethal hit from a massive reduction in boomers' discretionary spending, and avoid those stocks.
Of fashion, fear, and frumpiness
Here's one example. The Wall Street Journal recently reported the plight of iconic consumer-goods company Liz Claiborne
Even retailers that seem relatively stable face risks from boomers' budgetary brush with reality. Chico's
Think twice about investing in retailers or consumer-brands companies that rely too heavily on the baby boomer set, or have struggled to bring customers in the door in general. Turnarounds and brand transformations are a tall order in economically troubled times.
The boom's no balm
Boomers' busted budgets could impact many stocks in industries beyond the retail sector.
Consider that in 2008, boomers spent $135.6 billion on eating out. Since meals out at places like Cheesecake Factory
Companies and brands that specifically target baby boomers' discretionary spending pose a particularly shaky situation for investors at the moment. The young people who comprise Gen Y are also a large demographic, but they're not known for their financial stability at present. And even as they increasingly come into their own financially and buy up consumer goods and services of all kinds, it'll be a while before they're ready to patronize the same brands now catering heavily to boomers.
Is the frightening notion of budget-minded baby boomers overrated? Or do you agree that the prospects of broke boomers could be chilling for retailers? Chime in with your thoughts on the topic, and your recommendations for the best and worst stocks to play this trend, in the comments box below.