Younger Demographic's Struggles Portend Long-Term Problems For Retailers

There are signs that the recent financial crisis is starting to abate and business is beginning to pick up again for retailers. But a look deeper into the numbers shows that it has created a seismic shift in the buying power of one particular demographic group that will have long term effects on large ticket retailers.

As you look over the last decade, it's no surprise that the financial crisis impacted major ticket retail sales like cars, furniture and appliances. The surprise a deeper dive into the date reveals is the demographic group impacted the most. And unfortunately, this data portends years of continued slow growth or at the very least, market contraction for these same retailers.

According to a recent Wall Street Journal article, the group facing long-lasting financial effects of our recent economic troubles is those who are entering their 30s now. They are described in the article as “facing difficult job prospects, little-to-no income growth and a historically unprecedented level of student loans.” This is not surprising if you think about it. How many in this group do you know who graduated from college, but were not able to find jobs in their fields, ending up in lower paying jobs and living back with their parents?

According to the Commerce Department, ten years ago 32% of 27 to 30-year-olds had home loans. By last year that figure had dropped to 21%. Home ownership rates for 25 to 34 year olds had fallen from 49% in 2003 to 41.6% last year. We know that buying a home is a major factor in triggering sales of large ticket items like furniture and appliances. The loss of these customers is holding back these major ticket retailers.

Other key factors exacerbate the problem: incomes for this group have fallen over the last 10 years, the share of 25 year olds with student debt has grown from 25% in 2003 to 44.7% in 2013 and the amount of that student debt has expanded by 69%. All these factors have created a perfect storm that will impact retailers for a long time. Not only are purchases deferred, even when they are in the market, they will have less to spend or will have to opt for even more debt.

So what do you do when there are structural underpinnings suppressing growth? Today, more than ever, growth in major ticket retail has to come from taking a bigger slice of the market share. That means retailers need to be more promotional to convince customers to part with their hard earned dollars at their store. And different strategies need to be developed to attract those younger customers when they are finally ready to buy.

We are working on strategies to help major ticket retailers combat this problem. I invite you to share some of your ideas for doing so, too.

Michael Morin, EVP looking closely at numbers & data for answers