Over the next five years, Millennials, those born between 1980 and 2000, will be the largest contributing cohort to consumer staples and discretionary spending, according to a new report from Goldman Sachs analysts led by Lindsay Drucker Mann.
“With the purchasing power scales now tipping in millennials’ favour, we expect the disruptive impact of their ascent will be an important hallmark of the next 5 years,” writes Mann.
Drawing on Millennials’ economic and behavioural characteristics, Mann has identified eight trades:
- Dick’s Sporting Goods (Buy): Millennials have a more active lifestyle that brings with it more use of workout gear. “The company remains trend-right, today evidenced by a renewed emphasis on women and children, and promising marketing campaigns that connect with millennials and former athletes alike,” according to Mann.
- Nike (Buy): Nike is the top pick among athletic stocks. This is in part because of its international presence but largely because of the rise of the Millennials, “both because the US accounts for roughly 50% of company earnings and because of the US millennials’ influential role in a globally connected consumer landscape,” writes Mann. The retailer’s innovations in social media and technical products is als expected to resonate with Millennials.
- Under Armour (Neutral): Under Armour’s “grass roots marketing approach” has helped its cause. In the early stages “brand awareness and adoption was virally driven.”
- Lululemon (Neutral): While Lululemon has capitalised on female millennials’ focus on fitness, it’s “multi-year outlook is clouded at the moment by uncertainty about brand strategy following a challenging 2013,” writes Mann. “But with good execution we see LULU well positioned for long-term growth.”
- Sprouts Farmers Markets (Neutral): Millennials have shown a preference for fresh and organic foods and this has seen increased investment from grocery stores and brands. “Sprouts offers an ideal combination of wellness products at value prices, capitalising on two key themes we currently see resonating with millennials: 1) preference for fresh produce and natural/organic foods and 2) greater sensitivity to price vs. prior generations.”
- Dr. Pepper Snapple Group (Sell): Millennials wary of health risks from artificial sweeteners have contributed to a decline in diet soda consumption. Mann has a sell recommendation because of Dr. Pepper’s “outsized exposure to US sodas, as subdued volumes drive weakness across the CSD [carbonated soft drinks] category.”
- Hershey Co. (Sell): “Millennials are consuming less candy than the generation before them, and the lower propensity to consume is likely to contribute to a slow-down from the category’s recent above-trend rate and deterioration in HSY sales,” writes Mann.
- General Mills (Sell): The retailers organic and snack foods will be supported by the rise of the Millennials but these only account for 19% of U.S. sales. Growth in the U.S. will likely continued to be sluggish since “at its core it is a center-store processed meal company; roughly 68% of US sales come from cereal, meals, and dough and baking products.”
Mann and her team expect Millennials’ average annual spending growth ro rise 3-4% over the next five years, compared with baby boomers, who will see spending decline at a 2% pace.
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