During the current recession, the nation’s 79 million baby boomers have cut back on their spending habits, become thriftier and started to save more, according to an article in Business Week on August 3, 2009. This change in consumer purchasing behavior among boomers will have lasting implications for the economy. McKinsey predicts that economic growth in the U.S., which has averaged 3.2% since 1965, will drop to 2.4% over the next 30 years, as boomers spend less and save more. If boomers increase their savings rate from 1% to 5%, it will pull $400 billion out of U.S. consumption.
Boomers Living More Frugally
During the boom years from 1995 to 2005, boomers made up 78% of GDP growth. Boomers also comprised 47% of national disposable income in 2005, but only made up 7% of national savings, according to Standard & Poor’s and McKinsey and reported by BW. Throughout their lives boomers spent and borrowed at unprecedented levels and always counted on the economy rebounding stronger than ever whenever it weakened, as noted by BW. However, now many boomers for the first time are starting to live more frugally and are saving more, which is something consumers typically do as they reach retirement age.
Many companies have come to rely on boomer spending, because until recently boomers reached their peak level of spending at 54, while their parents, who were thriftier, reached their peak at age 47, according to McKinsey. Now companies need to adapt their plans to make up for changes in boomer consumption patterns.
Targeting Generations X and Y
Many companies are beginning to target Generations X and Y to offset the loss in boomer spending. Generation X, who were born between 1964 and 1980, are about two-thirds the size of the boomer generation. Since boomers will have to work longer to make up for losses to their savings from the stock market crash, it may delay Generation X moving into their prime buying years. Generation Y is comprised of 81 million people born from 1981-1994, but some 14% of this generation is unemployed, according to BW.
So it appears that companies will still need to rely on boomer spending for the foreseeable future.
Value Shopping
Savvy marketers need to appeal to more budget conscious boomers, who are used to being catered to. Many boomers have now embraced the concept of value shopping, but “they want to feel they’ve outsmarted the system…,” says Timothy Malefyt, an anthropologist interviewed by BW. That has led companies to employ a marketing tactic called “cheap chic”. For example, Starwood has developed two new cheap chic hotel chains called Aloft and Element and Nordstrom is now tripling the number of lower priced Nordstrom Rack stores that it’s opening, per BW
Companies that understand how to appeal to a thriftier group of baby boomers will be most successful at tapping into boomer pocketbooks for years to come.
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