Forgive me. But I’m going to use a dirty word today…
Whether we like it or not, millennials continue to help shape the economy.
If you’re in denial of the power of millennials, consider this…
Millennials value flexibility and have commitment issues.
So what happens to the car industry and housing market in a few years?
Millennials reject any notion of status.
So what happens to niche industries like Tiffany and Coach?
Millennials despise chain restaurants — always preferring a local tavern to Buffalo Wild Wings.
So what happens to public restaurant stocks?
Millennials oftentimes don’t even know what cable television is — let alone subscribe to it.
So what happens to Comcast and Time Warner?
Today, we’ll answer all of these questions and more.
Better Late Than Never
Millennials (I am one) are often accused of eschewing homeownership to live cheaply with their parents.
We’re also said to favor ride-sharing services over owning a car.
To be sure, millennials as a whole have taken longer to leave the nest than previous generations.
And we love the ease of Uber and Lyft.
But millennials don’t forsake home and car ownership — we’ve just delayed the purchases.
Indeed, the millennial generation actually made up the largest group of homebuyers (34%) for the fourth year straight, according to NAR’s 2017 Home Buyer and Seller Generational Trends Report.
There hasn’t been a major shift in the types of homes millennials are buying compared with previous generations.
But thanks to the internet, first-time home buyers are empowered to cut deals, with more information available than ever before.
Millennials aren’t just fueling home sales, either…
A recent study by J.D. Power’s Power Information Network showed that the share of millennials in the new car market soared to 28% in 2015.
That’s more than twice the millennial market share in 2010 — and now makes the generation the fastest-growing auto market segment.
How are millennials shaping the car industry?
Low gas prices have made gas-guzzling trucks and SUVs more attractive to the market.
But generally speaking, millennials want affordable, fuel-efficient vehicles that have the least negative impact on the environment.
And it’s a market that electric vehicle makers are happy to address.
The fact is millennials still want homes that they own for their families and vehicles in which to drive them around.
Make them cheap, efficient and good for the environment — and millennials will buy them.
Trailblazing the Cord-Cutting Revolution
Millennials start their adult life paying for something that’s grossly expensive, the cost of which has soared since their parents’ day.
Of course, I’m talking about college.
So it’s not surprising that they’re rejecting other things in their lives for which prices are also on the rise: cable TV.
Cable prices have jumped 5.8% annually in price for the past 20 years. While inflation has risen just 2.3%.
And while colleges have achieved such inflated prices by adding futile administrators and reducing productivity… cable prices have skyrocketed by adding futile channels.
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The average number of channels in a cable package used to be 44. It’s now up to 181!
Sure, millennials channel surf like anyone else. But even the most avid surfer can’t watch 181 channels at once, so the waste percentage has soared.
Of course, technology has also changed the game completely.
Many people — including nonmillennials — consume TV shows and movies over their computers or other streaming devices. Content can be easily re-routed to the big screen without the need of cable or an antenna.
Millennials are switching to streaming services like Netflix, Amazon, Prime and Hulu because they’re cheaper and can be more targeted to the user’s viewing habits.
That means millennial consumers can watch what they want, when they want.
Now cable companies are trying to compete with streaming providers by offering “skinny” packages. These come with a limited number of channels.
The problem is their relationships with the big content providers don’t allow them to do this easily. So these packages get bogged down by rubbish channels, which can jack costs back up.
As in many areas, millennials are blazing the trail here for the rest of us. Ultimately, only the most static couch potatoes — who still need their 100 hours of TV a week — will continue to find traditional cable cost-effective.
Breaker of Chains
If you’re tired of hearing about millennials, get over it!
They now outnumber baby boomers, which we’ve talked about incessantly for years as a key economic force.
In other words, we can’t afford to ignore them. How they spend (or don’t spend) their money directly impacts the economy and the fortunes of individual businesses.
That said, businesses shouldn’t exclusively cater to them. Case in point: Applebee’s.
The casual dining chain is shuttering over 130 locations after a failed attempt to rebrand itself as a modern bar and grill.
In the words of executive John Cywinski, the chain aimed to attract “a more youthful and affluent demographic with a more independent or even sophisticated dining mindset, including a clear pendulum swing toward millennials.”
And it failed. Millennials simply prefer highbrow local options over national chains.
Making matters worse, the company’s menu and atmosphere changes ended up disenfranchising long-term loyal customers, too. So not only did Applebee’s fail to attract new customers, but it repelled core customers as well.
Rest assured, Applebee’s isn’t the only chain suffering.
“You see very weak results from people like Ruby Tuesday’s, Friday’s and Chili’s as well,” says Joe Pawlak of food service research firm Technomic.
To top it off, as I mentioned above, millennials’ finicky tastes and tendencies are also impacting vanity stocks.
As The Economist noted, millennials “increasingly shun the taint of conflict and exploitation.” Not to mention their No. 1 source of financial stress is debt. And they’re delaying marriage longer than any other generation.
Add the three together, and diamond purchases aren’t anywhere on their radar. And that’s bad news for former highflying vanity stocks like Tiffany.
Ahead of the tape,
Chief Investment Strategist, Wall Street Daily