How to Get Rich by Banking on the Echo Boomers
Echo boomers are the demographic group comprised of baby boomers' progeny. They're slightly larger as a group than their parents (80 million compared to just 77 million baby boomers) and better educated. But this is a generation that's saddled with tens of thousands of dollars in debt -- something that will likely stunt their economic growth as they age.
However, while echo boomers work their way through these challenges, savvy investors stand to make hefty sums by investing in their consumer behaviors.
Short on Cash, High on Cachet
This group, though young, is already economically influential -- and will become even more so as their income grows.
According to the National Retail Federation, they already have direct spending power of over $200 billion and an indirect spending power of $500 billion. A few years ago, Visa predicted this group could account for $2.45 trillion in annual spending by 2015. Considering how indebted the generation is, it's interesting that echo boomers are described as largely "aspirational shoppers, middle-income earners with high-end tastes and affinity toward popular brands," according to market researcher IBISWorld.
This research gives good clues as to where they spend (and will continue to spend) their money. And it offers direction to investors looking to capitalize on this generation's spending habits by narrowing the field of stocks to companies that produce the products that matter most to echo boomers.
Three Key Industries Enjoying a Boost from Echo Boomers
There are three key places where echo boomers spend their disposable income:
Fashion. Echo boomers, as a group, are concerned about their style -- something fashion designers and luxury brands have certainly taken notice of. Over the past few years, Tiffany (TIF) and Coach (COH) have introduced lines of lower-priced jewelry and handbags, respectively, to attract women in this demographic.
J Crew, Banana Republic (GPS), and Urban Outfitters' (URBN) Anthropologie offer high-end fashion products at affordable prices. And even Target (TGT) has been pairing up with high-end designers to woo this group. This past Christmas the mass-market retailer went so far as to team up with Neiman Marcus to add some high-end cachet to its offerings.
Health. Echo boomers are also worried about their overall well-being, spending large portions of their paychecks on keeping their bodies healthy. One big winner that should continue to do well as the company expands is Whole Foods Market (WFM), which sells natural and organic foods and high-end personal hygiene products in and around major cities where this demographic is settling. Echo boomers also spend a good amount of free time at the gym. Town Sports International Holdings (CLUB) could be a winner given its dominance in the East Coast's largest cities (New York, Boston, Philadelphia, and Washington, D.C.)
Technology. It should come as no surprise that echo boomers spend large sums of money on gadgets from companies like Apple (AAPL), using online services from Google (GOOG), and buying items on Amazon.com (AMZN). These companies have already been wildly successful for investors, but given echo boomers' seeming addiction to newer, faster, and more expensive electronic toys, this success should continue.
Make Money from the Trend
These sectors may change as the group ages (though technology will probably be a big desire for them for the remainder of their life). But for the next 10 to 20 years, these preferences should remain the same. That means that investors who get in on companies like those above (even after their successful runs) will continue to be rewarded.
This article was written by Motley Fool analyst Adam J. Wiederman. He has no positions in any of the stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Coach, Google, and Whole Foods Market. The Motley Fool owns shares of Amazon.com, Apple, Coach, Google, and Whole Foods Market.