Although it seems more like a year, the COVID-19 pandemic officially ended only six months ago, making this holiday season the first big test of the new-normal retail economy and giving us a clearer picture of how the crisis has changed how we live and spend.
So far, two major trends stand out.
The first and most profound is that there are now two distinct consumer economies, and they are moving in opposite directions. Retailers will be challenged to figure out how to straddle the difference.
One consists of Americans over the age of 60 (born before 1965) – Baby Boomers and their elders, dubbed Traditionalists. As measured by the Census Bureau, the over-60 crowd is about 25% of the population, but based on Federal Reserve data, they own almost two-thirds of the nation’s net assets.
The other consumer economy lumps together Millennials, Gen Z, and Gen X – roughly ages 30-60 (born between 1965 and 1996). This group represents about 45% of the country’s population of 333 million), but only about one-third of the nation’s estimated wealth of roughly $156 trillion.
By themselves, these data points are significant, but in many ways to be expected. Retirees enjoy the lifetime benefits of growing pensions, investments; the rising values of real estate and other fixed assets; and the decline in mortgage and other liability balances.
What is remarkable: older Americans appear to be the driving force in consumer spending while their children and grandchildren are retreating.
That’s the conclusion of a recent Bank of America report based on its customers’ total household credit and debit card spending. On a year-over-year basis, the bank says, “these older generations are the only ones increasing consumer spending.” BofA says total card spending per household among its Boomer and Traditionalist customers is up between 2% and 3% but has fallen by up to 2% among Millennial and Gen Z households.
Furthermore, the two groups hold divergent views of their finances.
BofA reports there has been a huge surge over the past six months in the percentage of the over-60 group who rate their personal finances as “good” or “excellent,” and a marked decline among all the younger generations.
Rising home prices and a buoyant stock market are likely drivers for older consumers. The stubbornly high cost of housing likely has dimmed the outlook for younger households who traditionally move more often. Either way, BofA concludes that, “there are enough upside influences on older generations’ spending for some outperformance to continue.”
The other significant trend showing up in surveys is that consumers appear to be less focused this holiday season on “stuff” (home goods, appliances, electronics, and other high-ticket items) and more on apparel and personal care products.
In a recent First Insight survey, leading the list of this year’s likely holiday purchases are apparel and gift cards.
It’s risky to extrapolate from short-term data, but one take-away that strikes me as possible is that people are going out more (restaurants are getting busier), traveling more, and emerging from the isolation of the pandemic years wanting to look good.
Consumers may be refreshing their wardrobes and sprucing up their appearances.
According to a recent report by Circana, a consumer research firm, beauty product sales are surging. The segment was, “the darling of retail through the first half of 2023, maintaining its position as the only industry to grow based on units sold across the general merchandise and consumer packaged goods categories,” said Larissa Jensen, a Circana beauty industry advisor.
Holiday is always full of surprises, and this year will have more than its fair share of them according to all the data.
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