As consumers, millennials have acquired an outsize reputation for high purchasing power, driving brands to design and market products with them in mind.
But according to new research from Deloitte, this mythic stature may not be wholly based in fact. As it turns out, millennials are mere mortals whose spending patterns generally mirror those of the generations before them.
“For years there’s been a widely held belief that millennials are just a different type of consumer, and most of that is because of their generational disposition. They value different things; they like experiences over goods,” said Bobby Stephens, an analyst for Deloitte Digital’s retail and consumer products division.
Still, when it comes to spending on things like food, restaurant outings, furniture and housing, millennial spending habits have remained basically consistent with consumer patterns from the past 30 years. Even entertainment spending on those beloved “experiences” like travel has remained virtually flat.
Perhaps most surprising is the fact that millennials have been able to keep pace in spending with their Gen X and Baby Boomer counterparts at all, given that most of them are financially worse off than their predecessors.
The net worth of consumers under the age of 35 has dropped a whopping 34 percent since 1996. The rising cost of healthcare and education have played a pivotal role in this, and paying down student loans or insurance coverage is pulling wallet share from discretionary spending on retail or entertainment. Since 2004, the cost of student debt has ballooned by 160 percent.
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“We have qualitative insights from our survey where millennial respondents said that they would choose making a student loan payment over having a meal,” Stephens explained.
When asked how millennials have managed to maintain roughly the same spending breakdown as the generations that came before them, Stephens points to a widespread delay in events that might change their spending profile, like getting married, buying a home and having children.
“The hypothesis here is that they’re keeping pace, but barely, and they’re doing it by delaying major life milestones,” he said.
The lone exception are very high-income millennials.
Earners in the top 20 percent of the cohort’s income bracket are likely “driving the misconception of millennials,” Stephens explained.
“Their persona is probably the one that most consumer product companies are thinking of in who they want to win with,” he continued. “They’re a very high-income bracket who can withstand almost anything. They’re a truly different animal than the rest of the U.S. consumer population.”
Despite the demographic’s significant economic hardships, brands are still clamoring for millennial market share, especially as the group grows older. When asked about the challenges brands might face in reaching these targets, Stephens explained that retention, not reach, is what’s posing a challenge at retail.
“There are so many different touch points by which to engage with a young, tech-savvy consumer. There are many opportunities for brands big and small to get in with them,” he explained.
“I think what’s presenting a challenge is the retention. There’s such heavy economic pressure, as well as so many options and choices, that the switching cost as a consumer from brand A to brand B has been reduced to almost nothing. It’s very hard to build a loyal base, to know who your one or two competitors are. It’s now 50-60 competitors,” he added.
The direct-to-consumer boom, coupled with tentative millennial spending on retail goods, has put brands in a bit of a bind. “We see that a lot with retailers feeling like they’ve lost their core customers,” said Stephens.
But on the positive side, he added, the challenge has brands thinking more creatively about marketing tools like collaborations. “They’re trying to provide multiple value propositions to a shared consumer base,” he said.
Overall, though, millennials aren’t spending less, Stephens emphasized. “We’re just seeing some light shifts in categories, from discretionary spend to non-discretionary spend.”