The Rapid Ascent of Millennials and Gen Z
Insight by John Kernan, John Blackledge, Vivien Azer, Andrew Charles, Oliver Chen, Brian Holland, George Mihalos, Gerald Pascarelli, CFA, Max Rakhlenko, Krista Zuber, John Cardoso, William Kerr, James Kopelman, Max Spaeth, Logan Whalley, Harrison Vivas, Andrew Crespo, Brian Vieten, Kimberly Hong, Jonna Kim, Jacob Henry, Philip Caldwell and Allison Jordan
The Cowen Insight
Our fourth annual proprietary Gen Z and Millennial survey across seven verticals illustrates transformational shifts in spending power and variance in spending preferences. Sustainability, social commerce, and shifts to digital are likely to have profound effects on growth and risk across retail, eCommerce, restaurants, food, cannabis, and payments sectors. Key themes from our 2020 survey largely strengthened, suggesting that ESG and social commerce gained greater momentum in 2021 with key cohorts.
The Importance of the GenZ & Millennial Demographic
Cowen’s GenZ and Millennial survey is one of the most unique data sets regarding variance between younger and older demographic consumption patterns and attitudes. Our fourth annual proprietary data set and work indicate a transformational shift in and rapidly changing path to purchase, emerging marketplaces, and brand preferences. GenZ and Millennial consumers should grow to 70% of the population by 2028 vs 60% today. Within the United States they will inherit an estimated $60T of wealth into 2050.
The Theme of Sustainability and Social Impact Continues To Scale
Social impact and sustainability showed significant y/y gains in our survey. When purchasing apparel, footwear and accessories this category was ranked as being either “very important” or “somewhat important” by 80% for 18-34 year olds (up from 67% in 2017) vs. 74% for 35-54 cohort and only 47% for the 55+ demographic. We see opportunity and costs related to retailers and brands shifting to more sustainable products and manufacturing.
Social Commerce Trends Are Accelerating in Our Survey
The influence scores of each social platform were up 10%-17% y/y. More users are following brands on each social platform vs. 2020. In addition, over 40% of users indicated that they had purchased products from a brand they recently discovered on each platform.
Generational Shifts Create Multifaceted Margin Implications
76% of Gen Z and Millennials prefer to shop online and shifts to digital channels is a catalyst for change in financial models across the sector. Our proprietary work on mix shifts to digital channels in Softlines Retail highlights the margin benefits of direct to consumer and digital models with scale.
The pricing power of social platforms is reinforced through growth in social commerce. This suggests rising customer acquisition costs and digital marketing costs for brands and retailers, which is likely to pressure SG&A rates. Gross margin mix shifts should offset – rendering gross margin critical for EBIT margin expansion given the channel shifts to D2C and potentially higher costs related to ESG as well as digital marketing costs. We see the highest incremental margins in the sector in five companies most exposed to the shift to digital.
Biggest Y/Y Changes in the Survey, Top Potential Dollar Shifts and TAM Implications Implied by the Survey
The three biggest rates of change among survey respondents:
- The percentage of respondents who indicated that they purchased a product from a brand they discovered on several social media platforms increased up to 50%
- Purchasing apparel, footwear or accessories secondhand using a Resale Marketplace increased 33% y/y
- Gen Z and Millennial consumers who bought something at a Physical Off-Price retail store increased 27% vs the 2019 pre-COVID base