Even though Swiss Private Bank J. Safra Sarasin prepared this report on the Rise of the Millennial for Equity purposes, we at TextileFuture think it is a very good summary for new trends, therefore we do publish for this Newsletter. The bank’s authors, our guest authors are: Kevin Strom, Loïc Diserens, Cher Ying Poh and Samuel Wong. We thank them for their valuable feature explaining many new trends.
“The Millennials have come of age, but the impact of that generation on the stock- market’s returns is only beginning. In this Spotlight we discuss the impacts the Millennials and Generation Z will have on key areas going forward.
Generation’s Y & Z
Respectively born between 1981-94 and 1995-2010 (although those ranges are not fixed), Millennials (Gen Y) and Generation Z (Gen Z) are changing the face of the world in many different ways and it will have lasting impacts on many different social and economic factors. Although, we are grouping Gens’ Y and Z together in this piece, there are differences between the two; however, many similarities exist to allow us to identify specific areas of commonality to focus on going forward.
According to data from the US Census Bureau the Millennial generation is the largest population segment in US history, accounting for ~73 million and generation Z is expected to peak at ~78 million around 2035. This compares with the Baby Boomer Generation at ~72 million. Worldwide, Millennials represents ~1.8 billion, of those ~335 million are in China and about ~86% in emerging markets countries. Gen Z accounts for ~1.9 billion, which is approximately a quarter of the global population, and is becoming the biggest consumer cohort globally.
Millennials have grown up during a time of great technological change, globalisation and economic disruption. This differs greatly from their parents in terms of behaviours and experiences. Going further, Gen Z’ers have never known a world without digital ac- cess and almost everything they want can be purchased on online via their handheld device or tablet. While Millennials were mobile pioneers, the younger Gen Z’ers are mobile natives. In aggregate, both generations spend many hours online daily, from gaming to social media to online shopping. Over the course of these two generations, the definition of Consumption has evolved, and access over possession and experiences over ownership stand at the forefront. Moreover, Healthy Lifestyle, including food and drinks, cosmetics, exercising, and ethics in a general sense, are strong characteristics for them. These two generations also exhibit the preference for instant Gratification e.g. via deliveries for online shopping and take away food, along with the higher propensity to travel for unique bucket list experiences. Generations Y/Z are also inclined towards prioritizing access over possession and experiences over ownership.
Finally, the growing sub-industry of CBD/cannabis on the alternative Health industry is a means of relaxation and is widely popular among the young generations. Looking ahead, we focus on five key areas based on the different ways of living and consuming by these two generations and how it will impact companies’ revenues.
1. Online Consumption
2. Healthy Lifestyle
3. Instant Gratification and experiences
4. Sharing Economy
5. Alternative Health
The rise of smartphones and data transmission capabilities has spurred the shift of media Consumption and social interaction from traditional channels (Television, news- papers, radio) to digital channels. Gens Y/Z are the leading users of this secular trans- formation and are more inclined towards using social media platforms like Facebook, Instagram, Twitter, Snapchat and Pinterest to express their views, gain knowledge and make Consumption decisions.
Due to the perception of authenticity, product and service feedback by “influencer” followings and information shared by friends via social media along with reviews from sites such as TripAdvisor and Yelp are crucial factors that affect the Consumption pat- terns of these generations.
Additionally, a preference for flexibility and convenience has not only driven the growth of on-demand and subscription based media distribution networks such as Netflix and IQiyi (China) but also induced traditional mass media companies to re-invent them- selves. Disney has recently embraced the digital streaming subscription model in this new environment by leveraging its existing differentiated quality content proposition.
By fostering social engagement and com- munity building, playing video games is a universal trend among Gen Y/Z males, with 84% associating gaming as “cool” (Ypulse) and 68% consider gaming an important part of their identity (Whistle-Sports). The Gen Y/Z group not only plays games casually and competitively but they also watch video games regularly too. This has brought about the rapid growth of eSports competitions and its related viewership content, with an expected audience reaching a record ~454 million this year.
Companies such as Twitch (a subsidiary of Amazon) have leveraged on the growing interest of games to create platforms not just for games to be streamed and “chatted” re- al time but also to create virtual communities built on common interests. Other technology giants have also followed suit, with Google and Facebook launching their own streaming platform; YouTube Gaming and Facebook Watch in 2015 and 2017 respectively.
Generations Y and Z are more inclined to- wards adopting a Healthy Lifestyle that involves a greater amount of exercise and Consumption of more nutritious and organic food. The rapid rise of internet connectivity in physical devices and everyday objects has enabled this younger generation to be better equipped to track their fit- ness/exercise goals and Health levels (via wearable tech such as Fitbit and Apple watch) along with caloric intake (via mobile apps such as Under Armour’s MyFitness-Pal). Therefore, it comes as no surprise that this Healthy Lifestyle trend has resulted in the even greater popularity of athletic apparel and footwear than previous generations.
According to a recent study by Morgan Stanley’s AlphaWise, Generations Y and Z are less fashion trend conscious (only 21 % of Gen Z and 34 % of Gen Y view fashion trends as important), but are rather sensitive to prices for clothes (more than 50 % of Generation Y and Z will prioritize price over brand value). Hence, this illustrates an opportunity for value oriented retailers such as Amazon, Walmart and Decathlon (USD 10 average unit retail price). However, there is a slight difference in preferences for athletic footwear. Generations Y and Z have a preference for leading brands (Piper Jaffray’s Gen Z survey showed that footwear space, Nike and Adidas led with 42 % and 14 % market share respectively) due to their continued innovation and investment in athlete endorsements.
The amalgamation of the rise in obesity and greater awareness for environmental Health has supported the rise of Healthy eating and a new age of grocery shoppers such as Amazon’s Whole Food that provides super-fast delivery options and Sprouts Farmers Market that emphasizes organic fresh food.
Generations Y and Z also tend to adopt higher ethical standards and consider food source, animal welfare and environmental impact in their food choices. Hence, this has driven a huge +600 % increase in people identifying themselves as vegans in the US over the last three years (GlobalData). Alter- native food companies manufacturing plant based substitutes for meat such as Impossible Foods and Beyond Meat are key beneficiaries of this trend, due to their ability to provide a cruelty-free and environmentally friendly option. Larger diversified food companies will also be releasing products focused on this segment in the near future.
Lastly, as a Health conscious group, Generations Y and Z have a higher tendency to not only use oral hygiene products and visit the dentist more often but also undertake orthodontic treatment. Hence, dental product suppliers like Dentsply Sirona and Henry Schein along with dental aligner maker Align Technology are key beneficiaries of this trend.
Instant Gratification and Experiences Immediate access to limitless information has enabled Generations Y and Z to seek instant Gratification in many walks of life, with E-commerce shopping turning into the norm due to convenience and price transparency. Piper Jaffray’s Gen Z survey showed, that a large majority (44 %) view Amazon as the most preferred shopping website due to its ability to provide instant Gratification in the form of same/next-day deliveries. Food delivery services (e.g. Mei- tuan Dianping, Grubhub and Ubereats) are also popular services that Generations Y and Z use to satisfy their needs. These apps enable the delivery of food often close to instantly with the added convenience of not having to get off the couch! The recent deal between Blackstone and GLP for logistics assets confirmed that this sector is a high conviction global investment theme nowadays. The private-equity giant is buying for USD 18.7 billion of U.S. e-commerce logistics assets, betting strongly on the bright future of online shopping.
Generations Y and Z are also more inclined towards adopting a YOLO (You Only Live Once) mentality that involves prioritizing immediate satisfaction and unique bucket list experiences among other items. Hence, they have a higher propensity to travel and are willing to allocate more money to fund this YOLO Lifestyle, with a recent study by Travelport showing that 33 % of Millennials are willing to spend USD 5000 or more for holidays, the most when compared to any other age group. Expedia Group Media Solutions has found that Generations Y and Z take approximately three leisure trips yearly, with an average total duration of 32 days, indicating that travel is a big priority for this generation.
With trip and food reviews on sites such as TripAdvisor or Yelp and price comparisons available sites such as Expedia, Booking.com and Ctrip.com’s Sky-scanner at their fingertips, millennials are seeking the best deals with the greatest value. Many of these young travellers are often undecided on their holiday destination and itineraries, presenting opportunities for social media advertising on platforms such as Instagram, Twitter and Snapchat, especially through influencers and appealing photos and videos.
The Sharing Economy
The sharing Economy is referring to an economic model of acquiring, providing or sharing access to different goods and services through peer-to-peer activity usually through an online platform facilitating the transaction.
As described earlier, Millennials and Generation Z share moments by documenting their lives in real time on social media plat- forms but they are also willing to share re- sources and therefore represent a very large component of this so called sharing Economy. Attitudes towards ownership have changed indeed and renting is perceived as a viable option, compared to acquiring, from a sustainable point of view as well. Consumption has evolved and now includes having access to products or services, and not necessarily owning them.
This comes back to the point that experiences are valued more than buying products. Moreover, unlimited access to goods and services sends a powerful signal about value creation since access represents a larger share of Consumption; it can create maximum convenience at a lower cost. Revenue from sharing Economy industries, such as on-demand staffing, media streaming, shared mobility, hospitality, and P2P & crowd based financing are expected to grow from USD 13 billion in 2013 to USD 335 billion in 2025, according to PwC.
New actors of this collaborative Consumption have been winning market share from traditional firms and brands and will continue to do so, reshaping entire industries of the Economy. Well known examples include Airbnb, and Couchsurfing in hospitality, Equity Residential in real estate, Uber, Lyft and Lime in the transportation industry, Spotify in music, Lending Club in peer-to-peer lending, Alibaba and JD.com in retail, TaskRabbit in the freelance handy work industry and more recently, Urban Outfitters has unveiled a new clothes rental service, called Nuuly, just to mention a few. We also saw venture capital investments in sharing Economy companies growing from USD 3 billion in 2013 to USD 30 billion in 2016 (excluding China).
We strongly believe that Generations Y and Z will continue to drive the sharing Economy for a while as decentralization is the direction where we are heading to. Thanks to technology advancements, it is easier and cheaper than ever before, and will be more so over time, for people to share resources, collaborate, connect to people and expand the reach of goods and services.
Among Health alternatives, CBD/cannabis is one of the fast growing industries. Moreover, CBD/cannabis appears to be replacing alcohol as a over the ten years studied, counties located in medical marijuana states showed almost a 15 percent reduction in monthly alcohol sales. An annual national survey of fifty thousand teenagers and young adults in the US showed that Millennials drink far less alcohol than past generations and many of them and Gen Z perceive cannabis as a Healthier alternative.
However, the industry is also targeting other segments of the population to alleviate seizures, severe and persistent muscle spasms, pain, nausea, loss of appetite, and other symptoms associated with serious medical conditions such as cancer. About 61 % Americans favoured legalization of cannabis in 2018, according to a Pew Research study, compared with 31 % in 2000. Millennials take the lead with 85% of voters in favour of legalization, while Gen X voters were 63 % also in favour.
Interestingly, Generation Y is not only consuming CBD/cannabis but also willing to in- vest in related stocks at a faster pace than any other generations, according to a Robinhood analysis. Currently, there are two ways we look at investments in the industry, either in Canadian companies, or the multi-state operators in the US. The first option includes companies, such as Canopy Growth, Aurora Cannabis and Cronos Group which benefit from federal legislation in Canada that allows for CBD/cannabis across the entire country. However, they are operating in a country with limited population (estimated peak sales of USD 7 billion). The second option comprises firms like Trulieve, Curaleaf Holdings, and Harvest Health & Recreation, these are focused on the US market, but traded on US exchanges because of US federal laws.
The US legal market is already larger than its neighbour, and the market value should reach around USD 25 billion by 2025, but the current prohibition at the federal level limit American companies from expanding to a certain extent. Worldwide speaking, Euromonitor estimates that the legal and illegal global market for cannabis equates to USD 150 billion in 2018, with the legal market expected to grow 77 % of total sales at USD 166 billion by 2025. Looking ahead, cannabis and CBD brand developers who supply the CBD and hemp markets will be the big- gest benefactors from a potential shift to- ward legalization and attitudes from mass markets.
Negatively Impacted Industries
While we feel the above industries and companies will likely benefit from evolution in consumption, it is also worth highlighting some areas we feel are most at risk. Casu- al-dining chains like Buffalo Wild Wings, Ap- plebee’s and Ruby Tuesday have faced sales declines and restaurant closures as young consumers are more attracted to ordering delivery and eating quickly, in fast- casual or quick-serve restaurants. We expect department stores like Macy’s and Sears to continue to suffer and close stores as new generations are more into e- commerce sites. As mentioned before, Millennials are not drinking as much alcohol as past generations and popular beverage companies such as Anheuser-Busch, Heineken and Boston Beer may suffer from this change in consumption.
With growth and expansion as their top priority, many of these companies such as Be- yond Meat and UBER burn through large amounts of cash and have warned investors that they may never been profitable. In addition, competition could potentially intensify as more companies enter the fast growing categories of (digital consumption, meat substitutes, and alternative health) and ramp up investments, thereby squeezing the margins of existing companies. Moreover, advanced technologies could also disrupt the current incumbents within the various themes (e.g. lab grown meats over plant based meat). Lastly, consumption trends are constantly evolving and therefore companies would need to continuously reinvent themselves to stay relevant among Generation’s Y & Z.
In closing, Generations’ Y & Z account for the largest part of the global population and are reshaping many traditional ways in which we think of Consumption. Leading companies will need to adapt to these needs and preferences accordingly. Starting with online consumption and the rise of mobile phones that have radically changed social interactions and how these generations are driven by friends, influencers and review websites when consuming. Moreover, convenience and flexibility regarding media Consumption is absolutely crucial, while online gaming generally, is taking up a big- ger portion of many daily lives. Moving on to healthy lifestyles, Generations Y and Z have a greater focus on exercise, which is resulting in the growing popularity of athletic apparel and footwear, and the adoption of higher ethical standards and the consideration of different factors in food Consumption. This group also tends to visit the dentist and use oral hygiene products more of- ten than previous generations. Continuing with the instant gratification and experiences, food delivery and E-commerce in general provide these new generations with the sentiment of instant fulfilment while travelling is also a preponderant part of their spending budget as they value more experiences over ownership. The sharing economy, known as an economic model of acquiring, providing or sharing access to different goods and services is heavily reflected in Millennials and Generation Z behaviour as renting is perceived as a more viable option compared to owning items outright. Access is the key word here, and industry leaders in hospitality, transportation, music, peer-to- peer lending and retail are focusing on this collaborative view of Consumption. Finally, among health alternatives, CBD/cannabis is growing in popularity, due to its positive Health benefits and overall positive impact on people’s well-being. We believe these five areas have the greatest potential to be impacted by generations Y & Z and investors will be well served to invest in these emerging and growing trends.
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