Are you set for Millennial disruption?

From Macquarie on the rise of Millennials:

 Millennials are in the process of drastically changing the income and spending trends of Australia by altering the hierarchy of needs and preferences to include:

 Sharing over waste;

 Experience over materialism;

 Wellness over hedonism;

 Sustainability over corporate excess; and

 Purpose at work over being a hired hand.

 By 2030, Millennials will earn two out of every three dollars of income generated within Australia with their spending power set to rise more than one half trillion dollars (from A$228bn to A$853bn). This not only represents a titanic rise of importance, but with an accompanying shift in the composition of spending.

 Millennials stand in stores, comparing prices and reviews on their smartphones; friends weigh in on their decisions via social media; and when they are ready to buy, they expect direct delivery, preferably on the same day. Logistics – providers of last mile express B2C services – will be a major winner (Toll Holdings and DHL) in an online world.

 Homeownership is out and with it the desire for TVs and furniture. In its place, will be a rising preference for products that are healthier and organic (A2M, BIN, BKL and BWX), based on convenience or spending associated with experience, health and wellness (including financial). Transport (QAN, QUB) and airport operators (SYD) are positioned to leverage this structural tailwind.

 Health Insurance is desired but will become more discretionary (BUPA, NHF, MPL). The sharing economy and affordability open up downside risks for personal Insurance (IAG and SUN likely to be most disrupted given the high exposure to personal insurance). Millennials are leaning towards the ‘gig economy’ – project based and paid upon results – and are increasingly partaking in co-working space. Office landlords (DXS, IOF, GPT, MGR) are exposed to this thematic.

 A coming of age for sustainability. Millennials have a desire to avoid working in sectors with a negative image (least preferred include Oil & Gas, Insurance and Defence). Career progression and not wages are the most preferred. A good work/life balance and flexibility are highly valued but poorly presented. Investment decisions are a way to express social, political and environmental values. Strong ESG will become a more important differentiator of investor preference. Millennials suffer from “short termism” implying funds flow and investment allocations are not sticky.

Key Economic Impacts:

 Already the largest population cohort and growing via immigration: At 7.1m people and 29% of the population, millennials are already the biggest demographic cohort in Australia. Strong net overseas migration will see this cohort continue to rise, reaching 8.7m by 2030 – a 67% increase on the number at birth. Over the next 20 years, the cumulative number of Gen Y and Gen X will mean 54% of the population will have been born in the digital age.

 Set to earn two out of every three dollars: By 2030, Millennials will earn two out of every three dollars of income generated within Australia – more than one half trillion dollars from the current level (from A$228bn to A$853bn).

 Housing will remain a dream: Housing affordability has gone from three times incomes in 1998 to eight times average millennial income at present. Population growth implies structural demand for housing will continue. However, the preoccupation with home ownership may structurally shift via this cohort pointing towards refurbishment and affordable housing as major themes over home filling. For REITs best positioned to provide affordable housing we favour Mirvac and Lend Lease and for home refurb we favour Wesfarmers.

 Perfect price arbitrage (unless they like you): Judicious spending is “hollowing out” the middle, putting downward pricing pressure on anything without barriers to entry that can be commoditised and creating new demand for categories more traditionally the domain of older or higher income consumers (e.g. affordable luxury, leisure & travel). Structurally this will add to downward pressure on consumer prices in commoditized areas but potentially offset by a greater willingness to spend on areas that satisfy social and personal ideals (environmentally friendly and sustainable produce).

Key Consumer Impacts:

 Digital natives to drive online shifts. Where Millennials spend defines their identity. Online shopping is in a structural upswing and is expected to account for ~17.5% of total retail spending by 2030. Third party logistics providers – Toll Holdings and DHL (not covered) – and other logistics companies that provide last mile express B2C services are likely to be substantial beneficiaries of a continued migration to retail online.

 Standing room only: Millennials stand in stores, comparing prices and reviews on their smartphones; friends weigh in on their decisions via social media; and when they are ready to buy, they expect direct delivery, preferably on the same day. The order of retailers most likely to be disrupted will be department stores (Myer), electronic retailers (Harvey Normal, JB Hi-Fi), and apparel retailers (Kathmandu). Restaurants already take a large share of the Millennial wallet at 12%. This will grow disproportionately as income and population shifts occur. Online grocery sales will double within the next 3 years alone.

 Buy what’s good for you and the environment: Millennials have a wider definition of health, extending notions of illness avoidance to seeing wellness as a route towards greater life fulfilment. Eating right is the #1 definition of what it means to stay healthy and the shift to fresh, natural and organic is being driven by younger consumers. Those companies shifting their focus to healthier, organic, or low and zero-sugar options – A2 Milk, Blackmores and BWX Limited – stand to ride the structural tailwind. On the short side, the shift away from heavy sugared products such as Coca Cola will continue and Domino’s Pizza may ultimately face headwinds from the shift to healthier diets.

The AFR also has an interesting take on the rise of Millennial investors:

Figures from the CommSec’s share trading platform show that more than 50 per cent of all new customers are now under 35 years of age.

Over the past five years the number of millennial customers has increased by 51 per cent and now represent 28 per cent of all active CommSec customers.

The number of 18-year-old to 24-year-old investors has jumped from 10 per cent to 20 per cent and those aged between 25 and 34 now represent 35 per cent of all customers, compared to 20 per cent five years ago.

“Younger investors have embraced online share investing as a means to take control of their finances and save for financial goals,” CommSec managing director Paul Rayson said.

“For a lot of young people home ownership is sort of out of the question, and they’ll be saving for travel, moving out of home or even to rent and to build a buffer to take control of their own savings. There will be many reasons but it won’t just be saving for a house deposit.”

This “permanently high plateau” for house prices assumption is bunkum so that component of the analysis is dubious though the rest seems sound enough. We’ve prepared the MB Fund on this basis by incorporating three basic principles:

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Comments

  1. Hmm. Agree millenials value very different things to ‘house and a car’ dream, and their spending habits changing accordingly. But living life to your values suggests choice. And them being squeezed with falling wages and hours worked (through things like the gig economy) suggests less choice. IMO unless costs of living drop significantly they might be stuck more in mundane reality of do whatever to pay bills than previous generations.

    • ErmingtonPlumbingMEMBER

      Yes, my hope is that they, through their resentment of the serfdom they are increasingly being subjected to, rediscover the “proper left”, a left destroyed by “New Labor”, look at the growing youth support for Sanders and Corbyn types. Get a young, hip guy or gal preaching the same message and the plutocrats had better brace themselves.

      When Margaret Thatcher was once asked, what she thought was her greatest achievement, Her reply was, “New Labor”
      No doubt she was referring to Thatcherite disciple Tony Blair’s removal of Clause 4 from the labor party’s constitution.

      https://en.wikipedia.org/wiki/Clause_IV

      Its time to take your Countries back, Young people,

      https://youtu.be/ETqOvBKnKdk

      https://youtu.be/M_o2tsp-E2I

      • ErmingtonPlumbingMEMBER

        If real and meaningful change cannot be brought to the labor party through democratic means, then forget about any success on a Nationwide scale.

        Your Country and your People need you to Participate,…do it for them, or do it for yourself, just join, turn up and demand better,…no one else can hold them to account.

        https://membership.nswlabor.org.au/Join/form

      • FeknameMEMBER

        Im not sure how likely that is. Another way of reading the above is that Millenials are about the ‘betterment of the self’ (good food, good education, good experiences). In contrast to previous generations that may have focused more on community or family (stable home, food on table, basic luxuries). I’m not sure I’ve ever met a millenial who is a member of a union that wasnt mandatory. I’ve met a lot however who had this idea in their heads that they’re a great negotiator, and that they were so valuable to the boss that they could get more from an individual contract than from an organised/union negotiated contract. There is also the problem of not really having any power. Everyone is replaceable.

        I’m sure there are plenty of young people in unions, but I don’t think we can expect lots of people to all work together in addressing the boss. Hell, even if we tried, it wouldnt be with today’s unions/union leadership. For a lot of young people their first interaction with a union is in a simple retail/fast food job covered under SDA. You can hit up Reddit if you’d like to get a general feel of what people think of SDA.

  2. Just look at the new Foxtel ad trying to suck up to them. The whole generation is an Apple advertisement. Conformity and cowardice dressed up as the opposite. Oh wow look at the pretty colours. Gen z might be more interesting. Probably not though.

    • …those Ads are aimed at baby boomers.

      $9.99 Netflix is for millennials struggling to make ends meet, $100 Foxtel is for baby boomers busy spending their kids and grandkids future.

      • Every Ad looks like that now, it has little to do with the target audience. Name me a car Ad that is actually about technical aspects of the car and not overwhelmed by feel good imagery, sweeping landscapes, bright cityscapes. Advertisement in the modern era is not about the product, but associating that product with highly attractive people/adventure/happiness/hyper stylized imagery, all reflecting a utopia delivered by the product.

        Seems wrong to blame millennials for this trend, they are not in control at your marketing department. They are lucky if they even have a job pouring coffee there.

      • Millennials aren’t interested in Foxtel and never will be. Foxtel is all about the oldies.

      • It’s so obviously an attempt to get some of that younger market share. That ad is pretentious as fuck and annoying. No it won’t appeal to the smarter SJW reddit crowd but it will get a few on board.

        Cashed up boomers already have foxtel. Have had it for years. Foxtel can just take them for granted.

      • BrentonMEMBER

        As is the case with much that is wrong with our country, it is another example of misplaced blame. Older generations have long demonized gen Y, gen Z, or whoever the latest scapegoat generation is, but they really need to start looking inwards for the lazy bludgers sucking the economic and social well being out of this great nation. No one has demanded more, whilst giving less. Objectively, they are, as a whole, parasites on a scale comparable to the FIRE sector itself. They leave a lasting and noteworthy legacy for future generations of Australians.

      • I agree but gen y needs to hit them where it hurts and take and be as brutal and pig headed as the boomers have been. Probably too late now anyway.

    • FeknameMEMBER

      Foxtel has to suck up. There is genuine hatred out there for Foxtel. I won’t pay them even if they charged $5 a month. Because I don’t want them to EVER have the market position they used to have. I want them gone. I’m not alone in this desire. I’m sure they don’t want to do what they’ve been doing. they’re having to drop prices more and more. It won’t be enough. Trying to act like a hip company and also trying to preserve old business models at the same time doesn’t work. There are companies out there that have huge support among millenials. Tesla for example. Its why every small business (sorry, ‘startup’) now calls itself a ‘disruptor’ or ‘innovator’. The old guard put so much damned poison in the well that some of us hate them on principle.

      • Yeah well how many millennials even know who Rupert Murdoch is? Let alone hates his guts. Knows what happened to the NBN. Knows who the IPA is? But loves all that hipster shit. A bit like the types out of Train Spotting and Human Traffic. We’ll see. Foxtel may be a lot more but it’s hardly break the bank expensive.

      • FeknameMEMBER

        @Owen – ‘Millennials’ covers people who ‘came of age’ after the year 2000 (pretty much). I assure you that there are plenty of millennials who know who Rupert Murdoch is.

        Foxtel doesn’t break the bank, but it runs counter to the mindset that millenials have. iTunes gave us the ability to buy songs directly, rather than buying an entire album for 2 songs. iTunes basically killed the Album. iTunes also got into TV and movies. Netflix got into TV and movies. Again- choose what you watch, and when you watch it. While all this was going on, Foxtel was sticking to its guns. Making people buy packages. When Netflix entered the market (after YEARS of of leadup), they were $10 a month. The cuts Foxtel made not long after, still had them at ~$50 a month if you wanted anything more than sport. (Previously the same was about $100 a month). They released Presto or whatever it was called, but still expected you to have a Cable account. This is not how millennials buy things.

        You may have noticed that shopping centres now favour smaller, more frequent purchases (e.g. Coles has mostly only self-checkout, with max 12 items). The age of hauling a giant shopping trolley of everything you need is turning into “buy what you need, as you need it”.

        This mismatch is felt by the consumer. When NBN was being replaced with a pile of garbage, Foxtel didn’t come out swinging for NBN. It happily let the government argue that HFC was viable for high speed internet. Don’t think that stuff like that went unnoticed. Not only was it noticed, but as more and more people realise that NBN is for more than just netflix and gaming, we’ll fucking remind people at every juncture which businesses benefited from letting the LNP say whatever they wanted in 2013.

    • BubbleyMEMBER

      the M’s will never go for Foxtel no matter how shiny the ad is.
      Why would they pay for that overpriced crap when they can rip it for free?

  3. JunkyardMEMBER

    “Those companies shifting their focus to healthier, organic, or low and zero-sugar options – A2 Milk, Blackmores and BWX Limite”

    Really?
    The people I mostly see falling for and paying the large premiums for organic are wealthy older generations. Rich bored housewives with nothing better to do than be part of the “worried well”.

    Millennials seem generally better educated on the uselessness of vitamin pills and the naturalistic fallocy of organic.
    Agree with the low sugar stuff but that’s a trend across all generations.

    • HadronCollision

      Low sugar. Heh.

      Happy to line up at the Gold Coast Half Marathon juiced to the eyeballs on carbs and sugar.

  4. Patchy at best. A few points to note:
    – Millennials don’t like PHI. No one does.
    – Replacing home ownership with desire for organic products? You have got to be kidding they are not even the same category of need.
    – The sustainability stuff is legit, but don’ think a millennial won’t go work for santos if they are paid handsomely.
    – Online groceries? You pick up groceries as you need on the walk/commute home. I mean if eating out goes up, hard to see grocery spend also go up, unless you are talking general population ponzi stuff.

    This reads like it was written by an old guy.

    • FeknameMEMBER

      For the online groceries thing, I know a guy who does it because it means the shop can’t temp him to spend outside his budget (you know how they put the milk, eggs, bread etc far apart to make you walk through the whole store?). I was quite surprised, I thought only wealthier people who can have a stay at home spouse would do it. But apparently its a godsend on a low income. No lollies isle to tempt the kids etc.

      No idea how widespread that is, but I thought the model would collapse 6 months after it came out. its been many many years.

    • BubbleyMEMBER

      “This reads like it was written by an old guy.”

      True. The whole smashed avocado thing was started by an old guy and his preconceptions of the Millenials.

  5. Please. The only reason Millenials have different spending patterns is because they can’t afford property or new cars, hence spend in other areas. Dress it up in whatever fancy reports you like but if property were 50% cheaper they would be snapping it up.

    As for the whole ‘Sharing’ economy propaganda. Just because everything including the local outhouse can now be rented over the internet does not make it ‘sharing’ – it is still renting, fueling the rent-seeking Australian economy.

    Oh and quite a lot are still living with Mum and Dad to age 35, which naturally is going to cause adjusted spending patterns when a major expenditure (rent) is not at market rates.

    • +1

      I think you are much closer to the truth than that reverse engineered list above. I highly doubt a desire for home ownership, stable secure work etc. has dramatically changed, only the availability of these things.

    • is the V for vendetta?

      I think you are correct though – I think most millennials would prefer steady income and a house with a back yard if it was available to them. Article does seem very reverse engineered to me.

  6. They prefer working the “gig”economy, or is that the only economy left for them to work in?

    I love my full time job, and I’ll be deep in the cold, cold ground before I recognise the “gig” economy.

    Still, Macquarie isn’t a bank, so I’ll forgive them for this rubbish report.

    • FeknameMEMBER

      Bit of A, bit of B.
      The way organisations are run has changed. A lot more specialisation, a lot more modular. IT for example has matured. Once upon a time you might have an “IT Guy”, and that guy would become entrenched in the business because he was the one who made all the business practises electronic. Trying to replace him would be an expensive and time consuming task.

      These days if you want to call yourself and IT professional, you’d better be replaceable. Properly documented work practises, with all necessary business information easily findable in the event of bus-hitting-worker. The work itself will be modular. Some of it off-the-shelf, some inhouse. No building the whole stack yourself. e.g. A lot of small businesses would be smartest using a service like GMAIL for their email handling, rather than hiring their own guy to maintain an email server.

      This also means that development practises have changed. The ‘in thing’ for the last few years has been ‘AGILE’. Most of agile focuses on small teams of specialists who can be put on jobs as needed.

      The result is a workforce that expects a modular sort of structure.

      Bit of a chicken and egg thing which came first- casualisation of the workforce, or practises that support casualisation. I definitely know people who legit don’t like the idea of working for just 1 employer, for just 1 role. I get it. I’ve been through a few mass layoffs. If you’ve only worked on 1 thing in 1 context, you’re less valuable than someone who has worked on many things in many contexts.

  7. Absolute and total dross

    Obviously cobbled together in a caffeine fueled binge by some low level graduate positions, from a few TEDx talks and some Bernard Salt-style nonsense

  8. DominicMEMBER

    “permanently high plateau” for house prices ..

    As there are no prior examples in all of history of a permanently high plateau in anything I’m to say ….naaah.

  9. J BauerMEMBER

    No way the boomers will let anyone other then themselves earn 2/3 of income generated. They’ll find a way to stay control some how or burn the place to the ground first.

  10. No mention anywhere that many (most?) of the millennials stand to inherit large property portfolios from their baby boomer parents.

      • ErmingtonPlumbingMEMBER

        Mmm,…Half and Half is kinda how the Labor/NLP polarisation thingy has always played out.

        Just sayin.

    • I see this argument about inheritances constantly trotted out to discredit arguments around intergenerational equity. It is a transparent red herring. For one, it is basically saying that younger generations will only really get a go once Boomers die off. Interesting. Is there any other way to make things work before they die? Secondly, the only benefits that stand to be inherited are those that are saved and not spent throughout the life cycle.

      Bringing up the issue of possible inheritances is really a way of saying: ‘I can’t come up with anything better’.

    • The boomers are probably the first generation ever that really took to “spending the kids inheritance” My own father used to gleefully tell me that they were going to do it. Murdoch probably sowed the seed in the early 90’s, and boy have the fuckers run with it.

      Locusts the lot of em.

    • drsmithyMEMBER

      How’s that ?

      Their parents will borrow against the value of their house(s) (equity mate) for consumption.

      Those that have anything left will hock it to get into aged care homes.

      “My parents made a killing on the biggest property bubble in history and all I got was this lousy T-shirt.”

    • alterbrainMEMBER

      Care to explain further? It is genetically tested to ensure purity of a herd, but A2 is from more traditional breeds e.g. Jerseys. A1 was introduced with higher production breeds. A2 was around for millenia. Neither A1 or A2 were developed by anything other than normal breeding, however.

  11. Don’t kid yourself into thinking that these Millennials have more enlightened ‘needs and preferences’ to other generations – they’d be just as greedy, self-centred, and wasteful as their parents if they weren’t handcuffed by their finances. But don’t worry, they’ll show us their true colours when mummy and daddy kick the bucket one day and they get to spend whatever is leftover after the old age home has had their way with the boomers savings…