Millennials are the most powerful consumer cohort in history, and boards need to take notice
High-performing boards analyse economic, social and demographic megatrends to shape and test their organisation’s strategic plan. Few trends are more complex or profound for industry than the rise of “Millennials” born in the early ‘80s.
Media stereotypes of Millennials as young people who waste money on café breakfasts (smashed avocados?) and overseas travel, and refuse to leave home, ignore the effect this generation is having on the global economy and society.
Macquarie Group says Millennials will earn two of every three dollars of income made in Australia by 2030 and estimates their spending power will rise by more than half a trillion dollars to $853 billion. “This represents a shift of titanic importance,” wrote Macquarie.
About 7.1 million, or 29 per cent of Australia’s population, are Millennials. Strong net overseas migration will add another 1.6 million Millennials by 2030, predicts Macquarie. More than half Australia’s population will have been born in the digital age by then – a demographic change that will quicken the expansion of the digital economy and industry disruption.
No organisation or industry will be immune to the effect of Millennials, many of whom are approaching their early thirties – a point when key life and financial decisions are made. It’s also a point where more Millennials will assume leadership role in business.
Consider the finance industry. Global consultancy Accenture this year identified the trend of banking “nomads” – customers, often younger, who are prepared to switch financial organisations and engage them online. The rise of Millennials is expected to drive significant disruption in traditional banking markets from emerging fintech ventures.
Compounding the challenge for boards is the age gap between directors and Millennials. The average age of non-executive directors in Australia in 2016 was 62, shows Australian Council of Superannuation Investors (ACSI) research. That is roughly double the age of average Millennials – a gap that could make this cohort harder for boards to comprehend.
Macquarie’s 40-page study on Millennials, published in June, is among the most comprehensive and insightful of its kind in Australia. The investment bank considered economic, industry and governance impacts as the power of Millennials expands.
Of course, generalisations about any generation need to be treated with caution, but patterns of Millenial behaviour are emerging. Here is the Governance Leadership Centre’s interpretation of eight key insights on Millennials for directors.
1. Home ownership is out
Soaring property prices, record-low wages growth and less secure employment have put home ownership beyond the reach of more Millennials, particularly in Sydney and Melbourne. That has huge ramifications for property development, the rental market, sales of home products and services, and demand for finance.
Mortgage-free Millennials may have more disposable income, but fewer assets or capacity to build wealth. That will affect their superannuation and Australia’s pool of retirement savings in coming decades, adding to demand for pension and other government welfare.
2. Experiences are in
Macquarie notes the trend of Millennials favouring experiences over materialism. Demand for international travel, for example, is rising as Millennials invest in life experiences. Stronger growth in services is also expected as Millennials outsource more aspects of their life (such as chores), to have extra time for experiences.
3. The beginning of ‘peak’ materialism?
Millennials are searching for unique, personalised experiences and see buying a car or TV as a lower priority, says Macquarie. They are using the “shared economy” to access products or services at a lower rate, when they need them. Witness the growth in Airbnb or, more recently, car- or bike-sharing services.
Collaborative consumption could fundamentally disrupt the economics of industries that have always relied on one product per consumer. What happens when 10 consumers use the one product through share-economy platforms, such as those for autonomous vehicles that are paid for like a monthly utility fee rather than an upfront cost?
4. Stand in stores, then buy online
A recurring pattern is Millennials visiting retail stores, comparing prices online, seeking feedback through social media and buying online for the cheapest price. Then expect same-day or next-day delivery – a trend that bodes well for logistics companies.
Boards must ensure their organisation’s strategic planning accounts for changing consumer patterns in the digital age. Increasingly, Millennials will buy more goods online and use bricks-and-mortar retailers as showrooms – a trend that is well underway.
5. Good for the planet, good for business
Millennials are arguably showing greater interest in corporate social responsibility than any generation in history. “Millennials believe business success should be measured in terms of more than just financial performance,” says Macquarie.
A PwC survey found more than half of Millennials will avoid working in sectors they perceive to have a negative image.
6. The rise of impact investing
Strong growth in ethical investing, evident in the latest Responsible Investment Association Australasia benchmark report, is driven by a new generation of consumers who are using their investment power to express their political, social and environmental values.
Institutional investors are responding by incorporating more ethical or, in the case of mainstream funds, environmental, social and governance (ESG) filters on portfolio decisions. Corporate ESG laggards, or those in unpopular sectors such as fast food or sugar, could struggle to attract sufficient support from Millennial investors.
7. Affordable luxury
Millennials may not have the wealth of older or higher-income consumers, but that is not stopping them trying to achieve a similar lifestyle. Macquarie says Millennial demand is hollowing out the middle part of markets by putting price pressure on goods or services that have low barriers to entry and can be commoditised.
Fashion is an example. More Millennials are buying clothes online and using technology to search for the best prices when browsing in-store. This is crunching fashion margins and making some high-end brands more affordable for Millennial consumers.
New affordable luxury categories are being created: offshore travel, for example. Once the preserve of wealthy consumers, international holidays have become a “rite of passage” for many Millennial consumers. So, too, has eating out at cafes or restaurants or having costly food home-delivered.
8. Why should I work for you?
From a risk-management perspective, boards should understand how their organisation is responding to the influence of Millennials on the workforce. The Gig Economy is encouraging more Millennials to work on a self-employed project basis and others are spending less time in corporate roles before moving to the next opportunity.
“Millennials are the most likely generation to say they would change jobs, give up promotion opportunities, move locations, or take a pay cut to have flexible work arrangements,” says Macquarie.
Millennials are also the least engaged of all generations at work. More than two thirds are not engaged or actively disengaged, meaning they have greater potential to damage their company, according to Gallup research.
Gallup says Millennials are more than twice as likely to leave their current job than other generations and that Millennial employee turnover is costing the United States economy an extra US$30.5 billion annually.
Australian boards should consider how Millennial workforce trends could affect their organisation’s succession planning, corporate culture and skill capabilities.
- Macquarie’s report, ‘Australian Macro Strategy: Millennials – more to invest in than avocados’, was published on June 19, 2017
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