There’s a lot to be said watching demographic shifts as you craft your investing strategy.
For instance, my favorite long-term megatrend is the greying of America as the Baby Boomers get older and need more medical care. Also, the demographic pressures on Japan as the nation sees its elderly population grossly outnumber its labor force has created serious challenges — as evidenced by the fact that adult diapers will soon outsell baby diapers in Japan.
But it’s not all about the world growing older. The Millennial generation in America — that is, those born between the mid-1980s and early 2000’s — are having a big impact on the nation’s economy.
And it’s not all for the better.
There are three specific businesses that millenials are shunning, causing a lot of pain for stocks in these industries.
So the narrative at retailers in 2014 has been a simple one: It was cold in Q1, so consumers bought less.
Unfortunately, that oversimplification ignores the stark reality that consumers have been steering clear of the mall for quite a long time.
Take Walmart (WMT), which predictably blamed the weather for poor first-quarter earnings, then also offered a cautious outlook. The fact that forward guidance is gloomy is proof positive that this wasn’t just a winter phenomenon.
And furthermore, anyone who has been watching WMT stock for a while knows that the company has struggled mightily for years. The company posted nine straight quarters — yes, nine! — of same-store sales declines in the wake of the Great Recession. And longer-term, the stock has posted a total return of 66% in the last 10 years vs. a 110% total return for the S&P 500 index in the same period.
Walmart isn’t alone, either. Teen retailers Abercrombie & Fitch (ANF) and Aeropostale (ARO) have performed even worse in the last 10 years, and are deeply in the red in the last 12 months. Fellow big box stores Best Buy (BBY) and Target (TGT) also have ugly 10-year and 1-year returns.
Why? Simple … millennials just don’t go to the mall, and they have no problem shopping online for everything from clothes to electronics. Furthermore, a lot of the disposable cash earmarked for magazines or music or video games now goes directly to digital merchants. There’s no longer a need to visit Best Buy for the latest CD or GameStop (GME) to get the new Xbox game when you can just download what you want.
It’s been a rough road for retailers in this digital age, and that will likely only get worse as this trend accelerates. E-commerce growth is rapidly outpacing overall retail sales growth and will continue to put the screws to brick-and-mortar merchants.
By now, you’ve certainly seen all the stories about why Millenials are not buying homes (examples here and here). The reasons and numerous and vary slightly each time, but it boils down to three simple facts: younger Americans simply don’t want the commitment of buying, they don’t believe that a house is a good “investment” or status symbol, and they typically want to live in urban areas that are more conducive to renting because of price and other factors.
Oh yeah, and then there’s the fact that a host of Millennials either aren’t working or seriously delayed their entry into the workforce because of a rough job market.
But don’t be fooled into thinking that builders have much more upside and are worth a bargain buy. Between the one-two punch of a housing market flattening out and Millenials creating an anchor on homebuying, this industry could be under pressure for some time.
When I was younger, a car was a ticket to freedom. I still remember my first set of wheels — a semi-rusty Chevrolet Cavellier with 150,000 miles on it that I bought with the cash from my job working the local fast food drive-thru.
But these days, there’s simply not the interest in cars like there used to be.
Consider that in 2010, a mere 28% of 16-year-olds had driver’s licenses, compared with 44% in 1980, according to another study from the University of Michigan Transportation Research Institute.
Auto sales in America have rebounded in recent years thanks in part to pent-up demand after the Great Recession, but the sad reality is that the U.S. love affair with the automobile may be coming to an end. That’s in large part thanks to a lack of interest among Millennials who look to live in walkable, urban locations and prefer car sharing services like ZipCar or ride sharing services like Uber.
Now, cars will never disappear — and in fact, U.S. auto sales could top 16 million in 2014 to mark the highest level of vehicle sales since 2007.
Still, General Motors (GM) and Ford (F) are up by single digits in the last 12 months vs. a 16% return for the S&P 500 in the same period. So clearly the tailwind for auto sales isn’t necessarily lifting automakers.
And as the reluctant drivers in the Millenial generation become a larger share of the auto buying public, the pressure could persist for some time.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.