The Millennial generation is now transitioning from the 15-24 age cohort, which has little discretionary spending power, into the 25-35 age cohort associated with household formations and rising discretionary spending. This confluence of Millennials reaching ‘spending age’ and Baby Boomers ageing out of their spending years is expected to significantly affect consumption over the next decade. We believe this demographic transition will pressure consumer spending dollars by roughly 1% a year until 2019, at which point spending should then accelerate. The composition of spending dollars will likely be affected even more dramatically.
The Millennial consumer will represent the highest percentage of peak earners by 2020, and by 2025 will represent 50% of peak earners in the US. No wonder consumer companies have begun to focus on the Millennial customer in such a big way. Addressing the Millennial customer requires a change in strategic direction for many companies, which, combined with the digitalisation of the economy, creates both opportunities and challenges. This is a major focus for our analysts during our management interviews. How do you compete with online retailing giants? How do you acquire a new customer? How is your marketing budget changing? Does your brand have authenticity? How do you retain Millennial employees? These are the questions companies need to answer, which are critical for investment decisions related to this demographic theme.
The Boston Company US Small Cap Growth Team