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When you think about the under 35s, you probably picture a group of ambitious, highly-driven, materialistic consumers. While that image has been typical for the past decade or so, there is a changing face to the younger consumers of today.

They appreciate the importance of saving, the virtue of thrift and green-purchasing. Call them overly realistic or hedonistic or even frugal, but they clearly are comfortable with the lifestyles they personally chose.

Key trends

  • Learning from the recession;
  • They are actually doing fine;
  • It’s no longer frumpy to be thrifty;
  • I’m savvy, not cheap.

Commercial opportunities

  • What is most important to consumers today is the intersection of ‘good-enough’ merchandise – not ‘the best’ – and low prices. Retailers must clearly understand this value equation in order to get consumers to part with their dollars. Thrifty young consumers are generally drawn to real, no-frills, back-to-basics, honest-to-goodness value;
  • Japanese consumer behaviour is shifting closer to that of shoppers in Europe and the USA with a greater willingness to shop online and the desire to buy in bulk – retailers and manufacturers can look to those markets for guidance. IKEA, the home furnishings retailer that is planning to open its sixth store in the country in 2012, is a good case study.

Background

Consumers across all age groups have learnt a painful lesson from the recent recession – particularly the younger ones who see their “big, bright future” – something that was once taken for granted – vanishing right before their eyes with companies downsizing, going bust, employee layoffs, incomes squeezed and plunging house prices. “We’ve adjusted our finances in a draconian way,” says 32-year old Rick Shultz in Ohio, who works in car sales. This year, he passed up a biennial golf trip to Scotland and suspended his country club membership.

“I even pack my lunches most days.” Even those who feel secure in their jobs continue to be cautious about spending. “I realise that layoffs can happen at any time,” says 28-year old London-based marketing manager Adeline Wong. “With that in the back of my head, I’m not planning any big expenditures, so no plans to buy a new car or furniture.”

In some parts of the world, we are already seeing the impact young consumers and thrift can have on the car industry. In Japan, for example, many potential Gen Y motorists are foreswearing the automobile, insisting they would rather walk, ride a bike, or stick to public transport. Yutaka Makino hops on his skateboard or rides commuter trains to get around Tokyo.

Like many Japanese of his generation, the 28-year-old musician and part-time maintenance worker says owning a car is more trouble than it is worth, especially with rocketing parking fees and fuel prices. “Young people’s interest is shifting from cars to more affordable communication tools like personal computers, mobile phones and services. “Kuruma banare,” or “demotorisation”, is a U-turn from earlier generations of Japanese who viewed car ownership as a status symbol,” said Yoichiro Ichimaru, who oversees domestic sales at Toyota Japan.

Learning from the recession

Scared by the depth of the recession, spendthrift Americans are consuming less and saving more, much like they did a couple of generations ago after the Great Depression.

In 2009, borrowing decreased by 1.7%, the first drop since records began in 1952, according to a report released in March by the Federal Reserve. “I don’t think consumers, even the younger ones, will go back to the shop-till-you-drop mentality,” said Joel Naroff of Naroff Economic Advisors. “What’s going on right now is people have concerns about financial stability: Will they have a job? What is going on in the world?”

In Japan, consumers’ newfound propensity to shop for discounts and shun luxury goods marks a sea change in the retailing scene, according to consulting firm McKinsey & Co. “This fundamental shift in the attitudes and behaviour of Japanese consumers seems likely to persist, irrespective of any economic recovery,” Brian Salsberg of McKinsey in Tokyo wrote in a report earlier this year.

The younger generation that grew up during the economic stagnation has contributed to the shift, showing “radically different attitudes” to spending, with many shunning corporate life and materialism and struggling to get work, McKinsey said.

According to a survey from the Nikkei Research Institute of Industry and Regional Economy published in March, low-cost fashion chain Uniqlo is the most popular fashion brand among Japanese women, overtaking the all-time favourite Burberry. 23-year old Tokyo office worker Mieko Watanabe, seen shopping at Uniqlo for something comfortable to wear at home, said: “I didn’t want to pay 6,000 yen (US$67) for something to wear at home. But 2,800 yen was not out of my price range. I’ll even buy another in a different colour.”

They are actually doing fine

Despite all the signs that young adults are becoming ever more dependent on their parents, they may be doing just fine when it comes to saving, according to a study published early this year in The Journal of Consumer Affairs.

The study, conducted in the United States, found that while those under 30 generally saved less than older adults in real dollars, when adjusted for factors like income levels, more young adults than older adults said they spent less than their income. The researchers found that about 61% of 25-year-olds and 58% of 35-year-olds said they would be spending less than what they earned, compared with about 56% of 45 and 55-year-olds who said the same. Spending less than one’s income was assumed by the researchers to mean saving.

In a recent article titled “Americans Are Finally Saving. How Did That Happen?” New York Times journalist Ron Lieber suggests that young people may be behind some of the increased saving levels found in 2009. He cited Bank of America Merrill Lynch numbers, where the company looked at workers who started or stopped saving in employee retirement accounts up to November last year.

The company found workers ages 21 to 35 had the highest ‘start’ saving percentage among any age group. Similarly, according to a Fidelity Investments study released in early March, more than 70% of employed adults aged 22 to 33 have set the goal of daily money management and budgeting as their biggest focus.

It’s no longer frumpy to be thrifty

To younger consumers of today, it is not that being short of cash and out of work has suddenly become cool; it is just that it is no longer seen as shameful. “I was getting pretty well-paid at a job with the university,” said 24-year-old Kelly Bradfield, a Berkeley graduate who worked as a policy associate until the department downsized and she lost her job a few months back.

“I was saving up a lot of money because my fiancé and I were trying to start up a ballroom dance studio. So when the job disappeared, I had this nest egg saved up. Furthermore, I decided to really look at my spending habits and really cut down. I cut out everything inessential. The DVD rental account, the magazine subscription and so on.

For me it hasn’t been stressful, it’s been fun. Maybe we don’t want to engage in keeping up with the Joneses. We’re happier, because we’re able to keep our expenses really low. Just like Kelly, an increasing number of young people, be it out of necessity or making a virtue of toned-down consumerism, are finding ways to cut their spending; entertainment in cheaper ways, being frugal in fashion without being frumpy and cooking more at home.

In Japan, many young men now have a new identity. They are called the “soushoku danshi”, literally translates as “grass-eating boys” or herbivores. These men, raised as the economic bubble burst, are turning their backs on Japan’s stereotypical male roles in what is seen as a symptom of growing disillusionment with their country’s troubled economy.

“Since I was a child, I hated people telling me, ‘behave like a man’,” said 31-year old Roshinante, who opts for a less competitive life running a forum on popular Japanese social network site Mixi for frank discussion about herbivores.

To increase cash flow, many ordinary consumers are increasingly turning themselves into a new class of consumers known as sellsumers. Due to “a recession-induced need for cash” and “an ever-growing infrastructure that allows individuals to act as part-time entrepreneurs”, many younger, tech-savvy consumers are looking for multiple ways to make money, instead of just spending it.

Sellsumers sell what they create or own, from extra rooms and parking spaces, to advertisement space on their blogs and websites. A blogger writes: “With the growing number of people becoming millionaires via the internet, it’s no surprise that others are following”.

I’m savvy, not cheap

Few people know how to haggle better than Joe “the Coupon Guy” Daugirdas. “I once bought a clearance $500 sink for $5 by haggling a salesperson at Lowe’s,” said the Ohio bargain-hunter. “I still have the tag with the $5 approval written on it.” Like Joe, more people, particularly younger ones, are haggling more than ever on so-called non-negotiable prices.

A Consumer Reports survey of 1,000 shoppers late last year found that more than two-thirds of Americans tried to bargain for a better deal and that in most cases, got retailers to cut prices. The survey found that hagglers had success rates topping 75% when they tried to negotiate lower prices on hotels, cell phone plans, clothing, jewellery and appliances.

Hard-core hagglers tend to be younger shoppers. 37% of those under 35 said they “always or often asked for discounts,” the magazine said. America’s Research Group Chief Executive Britt Beemer said: “It’s the highest percentage I’ve ever seen it,” adding that he does not think the haggling will end when the economy recovers. Shweta Oza, who studied bartering and negotiation as an assistant professor at the Miami School of Business Administration observed: “American consumers always thought they couldn’t ask for a price cut; they thought it was being cheap or weird.

But the economy has acted like a trigger – Americans are more comfortable asking for discounts, and they’re finding that haggling “is empowering, not demeaning.”

Outlook

A “shift to thrift” by American consumers will not go away any time soon, according to AlixPartners, a global business advisory firm. In every retailer category this year, product and price were the two most important attributes, and service was the last – a vast change from similar AlixPartners surveys in recent years.

“I’m not sure young customers are going to ever go back to shopping the way they once did. They seemed to gain an edge of wisdom when it comes to saving money” said Betsy McLaughlin, the chief executive of Hot Topic, a competitor for the teen market, largely on the strength of licensed products linked to the “Twilight” vampire series.

In China, young consumers are becoming increasingly interested in the environmental credentials of brands, a new survey released in March by Greennovate, the environmental consultancy, has revealed. Of the surveyed 400 people aged 15-27 years old, 58% of them “make the effort to verify claims of environmental friendliness if they are in doubt”, with most using the net to try and locate relevant material. “There is a misperception in the values and ideals of Chinese youth: they value health and education more than fast-paced, spend-thrift lifestyles,” the study concluded.

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