Millennials can’t get enough of Starbucks’ $4-and-up coffee
If you buy into media stereotypes about millennials, you probably believe the following about the infamous Generation Me. They’re under-employed. Bummed out about work prospects. And, as a result, holed up in their parents’ basements.
But thanks to an impressive surge in jobs in the past two years (which you may have missed because of the barrage of stereotypes), many millennials are actually hitting their stride in life.
Now, as they enter their prime spending years, the implications could be big for the economy. In short, millennials may help the economy grow faster than many analysts think, says James Paulsen, economist and market strategist at Wells Capital Management.
Their newfound employment strength will also help companies that cater to their needs and lifestyles — such as TV-streaming company Netflix Inc. NFLX, -0.64%coffee chain Starbucks Inc. SBUX, -0.94% a small cosmetics company called e.l.f. Beauty Inc. ELF, +1.38% and seven others I mention below. Home builders may finally get a burst of growth from millennials, though that remains to be seen.
First, the facts, as stereotypes die hard.
- Since January 2014, employment among millennials (25- to 34-year-olds) grew 7%, to 33.9 million. That was far more than the overall 4.6% growth in the number of workers in the economy, to 151.9 million. Here’s another way to put it: Millennials got 33% of the 6.74 million new jobs added, even though they account for only 22.4% of the number of people working. In contrast, employment among 35- to 54-year-olds was flat. Boomers, ages 55 and up, saw 9% job growth.
- Probably as a result of the jobs gains, consumer confidence among millennials continued to surge in the past year, even as it flagged among boomers. This bodes well for our economy, which is two-thirds driven by consumer spending.
Both of those trends are “definitely a plus for the economy,” says Chris Christopher, director of consumer economics at IHS Global Insight, an economics research and forecasting firm. “Especially as the millennials start getting married, they are going to have children and that will add even more spanning,” he says.
One qualifier here is that millennials have a lot of student debt. But this headwind will probably diminish with time, as people tend to pay off most of their student debt in about 10 years, and as their employment situations continue improve, says Samuel Sturgeon, of Demographic Intelligence. “Student debt becomes less oppressive over time because people pay it down, and because they get more established in their careers.”
Here are 10 companies that should benefit from robust job growth among millennials, generally defined as people born between 1982 and 1994. (Fun fact: This means they were the first to graduate high school in the new millennium, hence their nickname.)
Retailers
Do millennials like to shop? Of course. “The idea that millennials are not materialistic, I don’t know where that comes from because all the data contradict it,” says psychologist Jean Twenge, author of “Generation Me: Why Today’s Young Americans Are More Confident, Assertive, Entitled — and More Miserable Than Ever Before.”
One problem here for investors is that millennials aren’t very loyal to brands. They make a lot of purchase decisions based on research conducted online. “Their favorite brand is what their smartphone tells them is the best product at the moment,” says Scott Galloway, a marketing professor at New York University’s Stern School of Business.
A way around this is to own Amazon.com Inc. AMZN, -0.23% and its de facto partner, FedEx Corp. FDX, -0.09% says Trip Miller, managing partner of Memphis-based Gullane Capital Partners. These companies also play into the millennial desire for instant gratification.
But millennials do favor certain brands, maintains veteran retail analyst Howard Davidowitz of Davidowitz & Associates, a retail consulting and investment banking firm in New York. He cites Nike Inc. NKE, -1.58% and Under Armour Inc. UA, +0.09%
‘Non linear’ companies
Millennials are a “non linear” generation, says Galloway. “They want what they want, when they want it. Especially media,” he says. “They want to consume media on their own terms.” They hate the idea of letting networks or cable companies decide when a movie or sitcom is available. The investment play here? “Netflix is the brand that embodies this trend,” says Galloway.
Starbucks
A recent look at millennial spending by Toronto-Dominion Bank found that they buy coffee way more than other age groups. “Our grandparents liked scotch. Our parents liked marijuana. And millennials are addicted to coffee,” quips Galloway.
This probably helps explain the success of Starbucks. That success should continue because of millennial job strength, which gives them more disposable income to spend on $4 cups of coffee. Starbucks also plays into the millennial desire for personalized service, says Twenge, given the enormous variety of coffee available, and the attention to service inside Starbucks shops.
Home builders
Job gains for millennials could soon translate into “noticeably stronger housing activity,” says Paulsen, at Wells Capital Management.
Sturgeon, an expert in marriage and fertility trends at Demographic Intelligence,agrees, because a big chunk of millennials are moving into the peak years for marriage and home buying. Thus, he forecasts an increase in millennial home ownership ahead. “You can’t delay having a family forever,” he says.
Twenge, author of “Generation Me,” says credible survey research (there’s a lot of garbage research on millennials) supports the case for a millennial boost for the housing market. “Millennials really do want to own their own homes.” They state this in survey research more so than boomers did at the same age, she says.
If this thesis is right, it could help home builders like Beazer Homes USA Inc.BZH, -3.64% which I have recently suggested in my stock newsletter, Brush Up on Stocks. I like this company, in part, because of robust insider buying.
Not all analysts agree. “I don’t buy it,” says Galloway, the marketing professor at NYU Stern. He cites a preference among millennials for renting over owning, and a desire to avoid being tied down. “A lot of these kids saw their parents’ dream of home ownership turn into the American nightmare,” he says, a reference to the housing and credit meltdown that started in 2008. “They have basically called bullsh-- on the American dream.”
If you go with Galloway on this one, then consider Penske Automotive Group Inc.PAG, -2.46% which offers moving-truck rentals, and Amerco UHAL, -1.72% which offers U-Haul truck rentals and storage facilities, says Miller, at Gullane Capital Partners. “This generation is more mobile than any generation before. They switch jobs. They switch careers. They want to see the world.”
A ‘have it your way’ company
A 2014 survey by Elite Daily found that millennials like to engage with brands on social networks, and they like to co-create products with companies.
“That comes back to individualism,” agrees Twenge, author of “Generation Me.” “This gets to the psychology of the generation,” she says. “I don’t want you to tell me what to do or buy. I want a role in the process. I am important. Listen to me” are all key themes for millennials, she says.
A tiny cosmetics company I recently wrote about is all over this one. It’s called e.l.f. Beauty. It launches successful cosmetics products by culling ideas from millennials on social media. This tactic helps explain the company’s phenomenal 32% sales growth last year. Cleverly, the company saves on marketing and product development costs in the process. You can read more about this millennial cosmetics play here.
By Michael Brush
At the time of publication, Michael Brush had no positions in any stocks mentioned in this column.
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