Gen Z/Millennials: Sustainability Supports Durability
Insight by John Kernan, Vivien Azer, John Blackledge, Andrew Charles, Oliver Chen, George Mihalos, Krista Zuber, Gerald Pascarelli, CFA, Max Rakhlenko, Jared Orr, Harrison Vivas, Steven Schneiderman, William Kerr, James Kopelman, Max Spaeth, Andrew Crespo, Brian Vieten, Ross Collins, Kimberly Hong, Philip Caldwell and Allison Jordan
THE COWEN INSIGHT
Our third annual proprietary Gen Z and Millennial survey of consumers aged 18-34 across six sector verticals indicates that younger consumers are reshaping the consumer sector landscape. Survey results illustrate transformational shifts in spending power and variance in spending preferences.
The theme of sustainability continues to resonate widely with younger consumers. This is empowering brands and creating new marketplaces and services. Ecommerce, social commerce, resale, and variances in brand preferences will have profound effects on growth, and risk across consumer, ecommerce and payments sectors. As digital transformation scales, unit economics across the softlines sector can accelerate.
Gen Z And Millennials Transform Consumer Verticals
Cowen’s Gen Z and Millennial survey is a unique data set that shows the variance between younger and older demographic consumption patterns. This year’s survey indicates a transformational shift and rapidly changing path to purchase and brand preferences.
Gen Z and Millennial consumers should grow to 70% of the global population by 2028 vs. 60% today. They different ethnic compositions and wealth distributions than prior generations. Within this report we detail y/y changes in brand perception, channel preference and payment preference across verticals along with their views on institutions and social norms.
Sustainability & Social Impact Creates New Valuation Paradigm
Sustainability and social impact are cited when purchasing apparel, footwear and accessories as being either “very important” or “somewhat important’ by 76% for 18-34 year olds (+13% in two years of data). Whereas, only 45% for the 35-55+ demographic found this important. This theme permeates across consumer verticals. Major asset allocators are also increasingly focused on ESG initiatives. Premium valuation metrics will remain pronounced in growth models linked to sustainability.
As Sustainability Scales, Resale Explodes
Purchasing on resale marketplaces increased +28% for Gen Z consumers and +19% y/y for Millennials. Resale purchasers grew +91% y/y among 35-45 year olds. Resale platforms are rapidly acquiring new consumers and building networks and new services.
Suburbanization Will Support Leading Retailers And Restaurants
2020 represented rapid demographic shifts that will have multi-year effects on consumer habits as well as residential and commercial real estate. 29.7% of respondents in the 18-24 age group owned their own living space, a substantial increase from 19.3% in the 2019 survey.
We note suburban living increased +810bps y/y to 48.7% among the Gen Z and +370bps to 47.8% for the Millennial cohort vs. 2019. This is in contrast with a multi-year theme of urbanization and heavy investments in urban footprints from retailers and restaurants. We note our survey work was completed in June which could have affected responses on current living situations. Recent housing data supports a fundamental shift in behavior.
Social Discovery & Social Commerce Further Breaks Down Barriers to Entry In Retail
Our survey indicates Instagram is a leading platform for discovering new brands and products. Instagram’s strength in product discovery was most apparent among younger consumers. Over 40% of IG users aged 18-34 indicated that they purchased a product from a brand they discovered on the platform.
Meanwhile, more than 70% of Instagram users aged 18-34 follow a brand on the platform. Of those users that follow a brand, over 50% have made a purchase from one of the brands they follow in the past 3 months. Our data also shows that nearly 50% of Instagram users have interacted with IG’s product tag feature, which in our view highlights Instagram’s growing relevance as an end-to-end social commerce platform.
Implications of Instagram’s success are multi-faceted – it enables highly specialized direct to consumer brands to scale at increasingly rapid rates which lowers the barriers to entry and increases risk premiums/cost of capital in traditional retail. We expect this trend to lead to lower growth than consensus models, and potentially lower valuation multiples for vendors with mall based and outlet retail exposure.