While most retailers focus on the next quarterly balance sheet, it pays to also be alert to longer-term consumer trends. And one of the best ways to figure out the future is to pay attention to demographics, which can reveal opportunities and challenges headed our way.
Population Growth Less of a Driver of the Economic Engine
According to the U.S. Census Bureau, the U.S. population is growing at the slowest rate since 1937. The annual gain of only 0.7 percent in both 2016 and 2017 was the lowest rate since the Great Depression, nearly a century ago. The change is due to a number of things, including an increase in the death rate, fewer births and a slowdown in immigration (reduced by four percent in 2016). Population movement to the west and south is a long-term trend, including a migration of blacks from the north back to the south. New York shrank for the first time in a decade, and Utah became the fastest-growing state.
Businesses are accustomed to projecting growth based on expanding doors out into the suburbs and beyond as a result of unlimited population growth. Less population will require fewer stores and less expansion, meaning that existing stores must become more productive. This sets up a perfect storm considering the increasing competition from online shopping.
Changing Financial Fortunes Contract the Middle Class
There is only so much pie—and it can only be divided so many ways. While the wealthy may be immune to long-term income contraction, most middle- and lower-class consumers simply have less to spend. They are captives, stuck waiting for better jobs and raises in income, full recovery from losses in the Great Recession and more affordable housing. Until this happens, the majority of Americans will have less to spend in the consumer marketplace. Pew Research reports that the middle class is no longer a majority on a nationwide basis. In 1971, according to Pew, 61 percent of adult Americans were middle class or middle income, but that number has fallen to below 50 percent of the population today. According to the Russell Sage Foundation, a typical household today has a net worth 14 percent lower than the typical net worth in 1984. One group of international economists studying incomes found that stagnant wages have decreased the share of income going to the bottom half of the U.S. population to a 12.5 percent share of total income, from around 20 percent in 1980. Based on a survey by Google, approximately 62 percent of Americans have less than $1,000 in a savings account, and a report from Bankrate states that only 41 percent of Americans have enough savings to handle an unplanned expense of between $500 to $1,000.
In addition to lower family financial resources, we are seeing a compression of financial assets into certain geographic areas—often at the expense of others. Ninety percent of the United States’ gross domestic product and 86 percent of all jobs are generated in only three percent of the continent. This may be a factor in the trend of moving back to and regentrifying city centers, which has been particularly popular with millennials. Over the past several decades, those living in cities, especially large urban centers, have differentiated dramatically from those living in other parts of the country. And it is providing a point of conflict, as evidenced in the 2016 Presidential elections, where candidate Trump gained traction by appealing to “those left behind.”
Lower household incomes do not bode well for families or for the country, and they certainly do not bode well for much of the retail industry. The reality is that retailers, who have traditionally served the middle class, have less middle class to serve—and even those shoppers are financially stressed. For many, aspirational shopping is a thing of the past. Retailers serving cost-driven shoppers are faring the best. These shoppers have lower standards, do not demand quality and shop more often because they are living paycheck to paycheck. But even cost-driven shoppers can be fickle, as Target and Walmart have found out over the past few years. Dollar stores, c-stores, warehouse clubs, and off-price stores (T.J. Maxx, etc.) are doing the best in this economic climate, as well as online sources that offer hyper-competitive prices and free shipping (read Amazon).
The Rise of Multigenerational Housing
One in five Americans now lives with more than one generation in the home—a record 60.6 million people. Around 40 percent of young adult Americans (18 to 34-year-olds), or millennials, live at home with their parents or with other family members, the largest percentage since 1940 and an increase from 33.5 percent in 2012—in spite of the improving job market. Additionally, according to Pew Research, for young adults, living with parents surpassed living with a romantic or relationship partner for the first time since 1880. Pew attributes this to millennials’ delaying both marriage and household formation. There has also been an increase in “Grandfamilies,” households where a grandparent is the head of household. In America today, one in ten children lives with a grandparent.
This is having a major effect on how often households shop and what they buy. The traditional business model of the family shopping unit: two parents and two kids, is no longer as meaningful for predicting spending activities. Housing is also affected, including the size of homes and how spaces are divided up within the home, including consideration for the number of bedrooms and baths and even the size of garage
Fortress Families in Fortress Homes
Americans are staying [sheltering] in place. According to the U.S. Census Bureau, the number of people moving in a given year dropped from 20 percent of the population in the 1960s, to 15 percent in the 1990s, to 10 percent today, the lowest level since 1948. The number of people moving from one state to another has fallen by half since the 1990s. The reasons are complex: economic challenges for some; seniors who were locked in place by falling house values during the recession and who are now locked out of the housing market by rising prices; uncertainty about job prospect; a general fearful, apprehensive environment; and lack of confidence in the future. Familiar surroundings provide insulation and protection from the unknown (both real and imagined), as Americans become more averse to risk-taking and more obsessed with security and safety.
Public environments, including malls and stores, must project an aura of safety and security. Even small towns need to be concerned about acts of terrorism and crime, including police shootings. Clothing that people wear in public has become more anonymous—workout wear, jeans, etc.—more generic and less attention- getting, less likely to send signals about wealth, which might attract undue attention. Expensive homes have retreated behind walls and gates. Fortress families and fortress homes are the new normal.
Retailers can forget expanding children’s businesses, at least for the time being. The post-recession baby boom has not yet materialized and that may mean growing pains for the economy. With the typical birthing age of a mother now at 28 or older, the birth rate in 2017 dropped to the lowest level in 30 years, since 1987. There have been 3.4 million fewer births than normal since 2008. There are now more households with dogs than there are with children, 43 million vs. 33 million. And with the trend leaning toward smaller families, two kids or less, when millennials do start having children, the numbers aren’t expected to surge as much as with prior generations.
Veteran retail professionals may recall a time in the late 1960s to early 1970s when there was a similar baby drought. Some department stores closed their children’s departments completely for several years. No doubt, the recent demise of Toys R Us, at least in part, buckled under this trend, along with toymaker Mattel recently announcing the layoff of 25 percent of its workforce. Businesses depending on kids would be well advised to keep an eye on this birth population slowdown.
For the first time, there are more single adult Americans than married Americans—124.6 million adults, or slightly more than 50 percent of the population. In 1960, 72 percent of Americans were married. And in the 1960s, 93 percent of children were born to married parents, but by 2010, that number had dropped below 60 percent, and it is less than 50 percent today. A record eight percent of households with minor children are headed by a single father, up from one percent in 1960. In 2017, single women accounted for 18 percent of all U.S. homebuyers. It is estimated that one in four millennials may remain single for life.
Households with single heads, or one income, usually do not have as much income as households made up of married couples, though they may desire the same quality and abundance. Retailers can benefit from offering lower prices, providing support services and designing special products to these consumers. For example, we are already seeing more packaged single-serving food items in grocery stores.
Labor Force Changes
During the recession, it was no secret that more men lost jobs than women, probably because the women’s jobs paid less. And as the economy has recovered, it has created more new jobs for men than women. But the presence of women in the American workforce actually peaked in 2000. Since then there has been a slow retreat of women from the workplace. By 2020, The Labor Department predicts that women’s labor force participation will be lower than in 1990.
Boomer retirees are beginning to leave the workplace in significant numbers and Social Security claims are soaring. Many were laid off during recent recessionary years, and now boomers are aging out of the workforce, passing the traditional retirement age. According to Pew Research, 10,000 boomers are retiring each day, or 4 million a year. The aging of American society will present challenges for our networks: social, financial and cultural. Unprecedented, costly health care issues—dementia and Alzheimer’s, which are dramatically increasing in the elderly—are threats to Medicare, families and society. Middle-class families’ spending on health care has increased by 25 percent since 2007, which is especially challenging for retirees on fixed incomes.
Hard economic times always punish those with less money and power, so it is no surprise that the elderly and women may miss out on some of the freedoms and influence they had gained over the past 100 years—possibly even taking some steps backwards. (This is too complex a subject to explore here.) Since women account for around 80 percent of all consumer-purchasing decisions, reducing their presence and power in the economy may not bode well for retailers and other businesses. Boomer retirees will have to spend a much larger portion of their incomes on health care than prior generations (largely due to rising prices), leaving less to spend on consumer goods. Yet retailers can identify new opportunities to serve women and seniors—retirees are virtually an untapped market that will be beneficial and pay off.
Mobility: Phones Win Out Over Cars
Thirty years ago, the majority of 16-year-olds had driver’s licenses, but today, that figure has dropped to around 25 percent. Car ownership among 18 to 34-year-olds has dropped by 30 percent in the past five years. Many millennials do not see the need for a car, as long as a pal has one and is willing to chauffeur the group to yoga or the movies—or they can borrow Dad’s. According to Kelley Blue Book, as of January 2018, the average transaction price for a new car or light truck was $36,270, beyond the practical reach of average incomes. And since the average monthly amount now spent on digital equipment and services may be as much as a typical monthly car payment, many individuals simply do not have enough income to support both financial commitments—and for the young, digital wins out. There is also a cultural shift as more and more people depend on car services, such as Uber or Lyft, to provide affordable transportation so there is less need for individual car ownership. Of course, as millennials age and have children, the need for family-sized transportation may become more of an issue. Car sales have been strong over the past few years, but are recently showing some weakness, and the future of traditional auto ownership may soon see major changes. For example, some automakers are experimenting with subscription auto services. The entry of self-driving or antonymous cars to the marketplace may change the driving equation, but much will depend on whether incomes rise or not. And the more technological bells and whistles added to cars, the higher the price and the more complicated and higher the costs of maintenance.
The cost and responsibility of car ownership may become an obstacle to some individuals and families and may deter them from being as mobile as they might like. That drive to the mall may involve more of a commitment than in the past and shopping visits could be curtailed. This may likely be a factor in forcing more activity online.
Rise of the Nones
A Pew Research Center survey found that the fastest-growing religious cohort in America is the “Nones,” those who say they have no religious affiliations or beliefs. This group is more than 23 percent of the total population, and 32 percent of those under age 30, or around 97 million people. Millennials, who tend to be less religious in general, are more likely to identify as Nones. The Nones subscribe to different values than most mainstream Americans, are less likely to vote or to participate in civic institutions or activities, and in some cases, they may not celebrate traditional religious holidays. Another shift in religious demographics is the expansion of the Muslim religion in this country and worldwide. Globally, the Muslim population is expected to increase by 197 percent by 2050, with Muslims expected to be nearly as numerous as Christians by mid-century. At the same time, in the United States, Christians are expected to decline from three-quarters of the population to two-thirds of the population.
Retailers will see this as both an opportunity and a challenge. With larger families, different dietary strictures (halal foods) and different religious holiday celebrations, it may be difficult to serve the needs of Muslims, while also serving the expectations of traditional Christian customers and other religions, such as Judaism. Considering recent conflicts and incidents of radical Islamic terrorism in this country and abroad, increasing points of discord can be expected. There are other subtler changes: for example, swearing on a bible, or other religious document, in court may become meaningless for many. And with more difficulty in obtaining universal agreement on what is right and wrong, stiffer, more detailed laws may be needed.
Mid-Century: a Milestone for Big Demographic Shifts
By 2050, according to U.S. Census Bureau figures, Caucasians, or whites, will no longer constitute the majority of Americans. This will be one of the biggest changes in the history of the country, with numerous implications and impacts. Actually, this milestone was predicted to occur earlier, but stricter immigration policies and other factors have slowed the flow of foreigners into the country in the past few years. (Earlier predictions had called for white children to become a minority by 2023, and the overall white population to be a minority by 2042.) Between now and 2065, the U.S. population will increase by 36 percent to 441 million. Immigrants and their offspring will make up 88 percent of the increase, or 130 million people. Asians are now on target to surpass Hispanics as the largest foreign-born group in America by 2055.
Many retailers already try to appeal to different racial and ethnic groups, with targeted merchandise, special language signing, etc. Expect to see more efforts as dominant groups shift and exert their influence, demanding more recognition. Public environments will become more multicultural, which will be at once more welcoming and more confusing or chaotic. Smaller, specialty, niche businesses will proliferate.