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:
- from discovery to investment everything can be done online;
- self-managed ethical screening of all portfolios using manifold value systems is possible at the click of the mouse and
- contrary to traditional black box unit trusts, the MB Fund has complete transparency of holdings and fees.
It launches on July 1st. Register today!
