Supertrends 2017 Millennials’ Values
Millennials are the largest generation in history, and soon coming to full maturity as investors. Sustainability, clean energy, impact investing matter to the Millennials and will gain in importance in the coming years. As digital natives, Millennials are disrupting the traditional models and re-defining consumption, with Millennial brands emerging. Micro apartments are developing as an attractive type of housing for Millennials and investors.
Fifty percent of the world’s population is under the age of 30, and the values of this generation are set to become the norm. The term “Millennials” (or “Generation Y”) refers to those of 19-34 years of age, and “Generation Z” refers to those under the age of 19. We refer to them simply as “Millennials.” A number of institutions have conducted research into this generation’s behavioral tendencies. Millennials exhibit unique features (see Figure 1). Moreover, Millennials are one of the largest generations in history and they are influential and soon coming to full maturity as investors. We at Credit Suisse are ready to meet their needs and investment interests with a focused Millennials’ Values Investment theme.
Sustainable business and investments
Millennials are the most sustainability-conscious generation. Recent studies by Nielsen or Deloitte show that Millennials are willing to pay more for products and services seen as sustainable or coming from socially and environmentally responsible companies. As Millennials represent a rapidly growing consumer market, they influence companies’ success by their choice of products. Moreover, when investing, they will focus on those companies that live up to environmental, social and governance (ESG) standards.
The food and clothing industries have repeatedly received bad publicity due to human rights violations and environmentally unfriendly production methods. Nowadays, the food and drinks industry is leading the way to help set standards for sustainable agriculture amid a growing need for more food to feed an ever-larger population and to face environmental challenges ranging from water scarcity to herbicide resistance. In the clothing industry, global brands have agreed to better monitor conditions at factories supplying their goods, but still more transparency is needed. The difficulty in monitoring the fashion industry is that it moves its supply chain to new locations on a regular basis and suppliers use unapproved outsourcing.
The auto industry has fully embraced the trend toward electric vehicles (EV). According to current expert estimates, EV penetration will rise to double-digit levels by the start of the next decade (from less than 1% in 2015). According to the second annual survey on EV from the Consumer Federation of America, 36% of participants are interested in purchasing an EV. Young adults (18-34 years old) show the greatest interest, and half of survey participants would consider buying such a car.
At Credit Suisse, we provide full transparency about the ESG scores of most companies we analyze. We use the internationally recognized provider of ESG ratings, MSCI ESG, to inform ourselves and our investors about the Environmental (Carbon Emissions, Energy Efficiency, Water Scarcity), Social (Human Rights, Labor Standards, Diversity) and Governance (Corporate Governance, Management Compensations, Corruption and Instability) qualities of the companies we invest in.
One of the Millennials’ major concerns is climate change and global warming. The main drivers behind man-made global warming are greenhouse gas (GHG) emissions such as CO2 emissions linked to the use of fossil fuel (e.g. coal, oil & gas) and from industrial processes. To slow or even reverse the trend of global warming, “clean tech” has emerged, e.g. renewable energy, electric vehicles or smart buildings and the focus on energy efficiency.
Millennials worry about the future of the environment and feel responsible for it. Thus, it is not a surprise that support for electric bill surcharges for developing renewable energy was highest among Millennials, according to a study conducted by Deloitte in the USA. In addition, as they are used to benefiting from the sharing economy, they also have the greatest interest in community solar power, for example. Renewable energy includes many different technologies: bio energy, solar energy, geothermal energy, hydro power, ocean energy and wind energy. According to the 2017 BP Energy Outlook, renewables (excluding hydro power) accounted for about 7% of global power generation in 2015, but should increase to almost 20% by 2035, representing 40% of the growth in power generation. The strong growth is mostly attributable to lower costs; while the pace of cost reduction slowed for solar, wind power costs are expected to fall materially, driven by the improving performance of wind turbines. However, wind energy is also controversial due to its impact on landscapes and bird wildlife.
According to the 2017 BP Energy outlook, renewables (excluding hydro power) accounted for about 7% of global power generation in 2015, but should increase to almost 20% by 2035, representing 40% of the growth in power generation. The strong growth is mostly attributable to lower costs; while the pace of cost reduction slowed for solar, wind power costs are expected to fall materially, driven by the improving performance of wind turbines but wind energy is also controversial due to its impact on landscapes and bird wildlife.
Energy storage forms a key piece of future energy systems with higher (and less predictable) renewable generation. There are different types of storage: solid-state batteries, flow batteries, flywheels, compressed air energy storage, thermal storage and pumped hydro power. We see a lot of opportunity in solid-state batteries, particularly for lithium-Ion. Global energy storage capacity currently stands at about 250 MW and is expected to grow to 14,000 MW by 2023. Electric vehicles (EV) are another driver of battery demand. Based on the attractive outlook for batteries, plans are in place to build up to 12 new battery megafactories in order to triple current battery manufacturing capacity by 2020.
Social enterprise and impact investments
Millennials are willing to support enterprises that generate a positive social and/or environmental impact in addition to financial returns. Impact investing is about investing capital in such companies, which in most cases belong to the private sphere. We find such social enterprises in areas with pressing social challenges, such as education, housing, access to finance, agriculture and nature conservation.
Students, micro entrepreneurs and small farmers are the end beneficiaries of these enterprises. Many surveys confirm that Millennials are interested in impact investing. Others decide to pursue careers in social entrepreneurship, working with a foundation or a social investment fund.
At Credit Suisse, we have long-standing expertise in Microfinance and have established partnerships with recognized leaders in this field. Providing access to capital for micro-entrepreneurs is at the heart of Credit Suisse’s Entrepreneur-driven culture and history. We are proud of the contributions we make in connecting the bottom with the top of the wealth pyramid. Our extended impact investment solutions provide many different ways to combine investments with broader impact.
In the coming decades, baby boomers will transfer trillions of assets to their Millennial heirs, and given Millennials’ tendency to social engagement, impact investing is expected to grow in scale.
It will become a powerful engine of global economic, social, and environmental uplift. For it to develop successfully, though, micro entrepreneurs need to keep identifying opportunities to build companies that use impact capital.
Digital natives expect a “fingertip” experience
Gen Y and Z have been brought up in an era driven by technological advancement. They are tech savvy, they have access to instant information and they are connected. They realize that it gives them the power to change and impact the world: the world is at their fingertips.
When it comes to consumption, Millennials favor Technology brands.
- Millennials live with social media. They communicate through instant messages and internet reviews. Social media sites have billions of users. Over the past five years, social media marketing has become incredibly important for businesses to connect with their audience and establish brand awareness.
- Millennials have grown up with instant access to information. They now expect the same for goods. They browse the internet almost every day to look for items to buy. E-commerce has advanced strongly, and this year it is likely to capture a 10% share globally from traditional retail. Nearly all retail categories are affected. Traditional retailers have been forced to react and also offer e-commerce as well as reshape store portfolios and compete with the likes of Amazon, for which top-line growth matters more than profit margin: it is an intensely competitive environment, which is driving many companies out of business.
For e-commerce, key factors for success include having a social media presence; strong content; and convenience by way of an attractive shipping, delivery and return policy. The restaurant industry is now also evolving, introducing ordering systems, as customers no longer want to queue to pick up foods or drinks.
Fun, health and leisure lifestyle and consumer brands
Millennials are price sensitive as most graduated during the financial crisis and have fewer resources than previous generations. As a result, they continue to live with their parents in order to have more money at their disposal, spending their money with a focus on satisfying desires and lifestyle choices. Living experiences, rather than consuming or accumulating goods, helps them connect better with their friends, communities and people around the world.
Eating smart is a lifestyle choice for Millennials. While they still prefer cheaper food and want it to be convenient, they are also willing to pay for fresh and healthy food and to go to great lengths for the food experience. Veganism is very popular among young people: social media has played a major part in this, promoting vegan food as healthy but also respectful of the environment and animals. Specialty sellers (selling organic, ethnic, fresh, vegan products) have benefited from this trend, yet traditional retailers have been fighting back, giving more shelf space to these types of food. Branded processed food manufacturers and beer companies are losing market share and smaller brands are emerging. In response, large companies have started buying such smaller brands.
Millennials are an active generation and value experiences. Their drive for adventure and excitement pushes them toward new forms of fitness. Boot camps and marathons are in fashion and smartphone fitness apps are taking over the market as Millennials take their desire to be social to the world of fitness. Thus, sporting goods retailers, sports brands and makers of devices that monitor progress during workouts and allow Millennials to share their progress with friends stand to benefit. Low cost fitness centers are also on the rise.
Millennials value fun more than older generations do. Interactive gaming via mobile devices, for instance, is the fastest growing games market and has tripled in size in the past 10 years. Mobile gaming now has a market value of USD 36.9 bn, according to Newzoo Research in 2016, surpassing the digital console market.
Social media is also a great source of enjoyment for Millennials as they search for fun and variation in the work place.
More generally, the brands that are gaining ground with Millennials are the ones that create a way for them to be an active participant in their brand story. Not surprisingly, brands that represent clothing, technology, retail and a number of consumable products are among Millennials’ favorite brands.
Millennials are living with their parents significantly longer than Generation X did before them. The reasons for this include longer education times, increasing education costs, high real estate prices and today’s lifestyle of traveling all over the world. Thus, Millennials were underrepresented on the housing market for a long time. But as they grow older, they have started becoming more and more important for housing demand.
Millennials’ housing needs differ from those of former generations. Alternative housing forms such as single living reflect Millennials’ needs and values and are becoming more widespread. Single living is, in many cases, no longer a temporary phase between leaving home and starting a family. Rather, it is a conscious choice in an increasingly individualized society. The individualized and mobile society is leaving its mark on relationships as well. Many people, who are in a relationship, even in long term-relationships, do not live together with their partner, preferring instead to stay in a single apartment.
The rise in single-person households, combined with a high population density and high living costs in the urban centers, is shifting housing demand to smaller dwellings. Space-saving technological developments (digitalization, sharing economy) and a growing range of home-delivered services (cleaning, catering etc.) have boosted the acceptance of smaller properties. Micro apartments with a size of 20 to 30 square meters help combat the space problem by enhancing space efficiency. Successful concepts expand limited private space with the provision of communal areas such as roof terraces, communal kitchens, play areas and laundry rooms.
Micro apartments are an attractive type of housing for investors in urban areas with high rental prices and a lack of available living space.