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Millennials Are About to Reshape Retail. Here's How

By James Brumley - Oct 24, 2019 at 8:16AM

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There are a whole lot of incorrect assumptions floating around about the financial and shopping behaviors of today's young adults.

They get a bad rap -- and perhaps some of it is deserved. Broadly speaking, though, most millennials aren't self-entitled, lazy, spendthrift, or impossible to manage on the job. Instead, by and large, they're hardworking, realistic about money matters, and a lot more like previous generations than boomers and Gen Xers might want to admit. More importantly, they now outnumber baby boomers, and a whole lot of them are about to start having kids of their own.

That's a recipe for a sweeping shift in this country's consumer culture. As investment advisor Bill Smead told CNBC this month, the advent of true adulthood -- and parenthood -- for this segment of the U.S. population will cause them to start foregoing "Apple devices, craft beer, and Chipotle burritos" and instead limit themselves to what he called "necessity spending."

The definition of "necessity" is still up for grabs, though it's not difficult to generalize. It's also not difficult to guess which companies are best positioned to win major shares of millennials' $600 billion in redirected annual spending. Though many may have shunned the likes of Walmart (WMT 0.32%) or steered clear of bargain houses like Ross Stores, they're starting to appreciate those price-pragmatic options.

Large and in charge

As Pew Research forecast last year (based on the growth and attrition rates of both groups), 2019 will go down as the year millennials start outnumbering the baby boomers. Assuming those Census-based figures are as accurate as usual, there are now about 89 million individuals between the ages of 21 and 38 living in the United States.

Millennial shopping for a bargain

Image Source: Getty Images.

For the most part, they're not broke and under-employed or living with their parents either. The Bureau of Labor Statistics (BLS) reports the average millennial earns $56,000 per year. And Sheryl Palmer -- CEO of homebuilder Taylor Morrison -- recently asserted that roughly three-fourths of millennials above the age of 30 are close to the point where they will be selling their first houses and buying their second ones. And, contrary to the well-circulated assumptions, millennials only spend two-thirds as much as Generation Xers and baby boomers do on entertainment, according to the BLS.

This cohort isn't avoiding parenthood either. It's just that many of them are postponing children until they are in better economic circumstances.

The time they've been waiting for may be now. Even against a backdrop of restrictive tariffs and trade wars, the global economy is healthy, and wages are climbing somewhat. Unemployment in the United States is at a 50-year low. The Gen Z crowd hasn't experienced a more opportune moment in their adult lives to get married or start a family.

And they're doing those things with more thought and responsibility than many observers assumed they would.

Millennials' favorite shopping venues reflect priorities

Yes, young adults love (AMZN -2.78%). It ranked atop the list of millennials' and Gen Zers' favorite places to shop in the September poll taken by market research outfit YPulse. Their next favorite venues, online or offline, were Target (TGT -0.54%), followed by Walmart.

Granted, it's difficult to avoid Walmart as a shopping venue. It's the world's biggest retailer, and love it or hate it, in many communities it's the only practical brick-and-mortar option for many purchases. However, it's far from the only shopping option for tech-savvy millennials, and as it turns out, they are far more cost-conscious and value-sensitive than they've been presumed to be. A recently published recap of millennials' spending habits from Cowen & Co. determined they were more focused on value and more likely to shop at off-price retailers than older consumers. Cowen's findings named retailers like the aforementioned Ross Stores and Burlington Stores among the top beneficiaries of that frugality.

That survey's findings are in line with those of a similar 2017 study from IRI, which found seven-out-of-10 millennials choose the lowest-priced packaged-good options on store shelves.

It's difficult to imagine that Walmart won't win the business of a lot more cost-conscious young adults, particularly once they are working to pay off mortgages and raise children.

A foolish perspective

Don't read too much into the message. Millennials, like all other generations, will still occasionally splurge. And they're more willing to pay extra for environmentally friendly products or to give their business to corporations whose behaviors align with their social values too. And this transition, as a socially and culturally driven undertow, will take years to fully manifest.

Nevertheless, the entry of a large new batch of 30-somethings into parenthood, homeownership, and greater thriftiness is a major economic shift that can't be ignored. In the past, businesses made it a priority to find ways to capitalize on the secular waves created by boomers wending their way through their economic life cycles. But the next big opportunity will be the arrival of millennials in their highest-earning years. And while they aren't so financially foolish after all, those new parents and homeowners are going to have a lot on their shopping lists.

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