The Harley-Davidson Effect
Despite what you hear on the 24-hour news cycle, things are improving (slowly). We are definitely in a pattern of one step forward and a half-step backward. Not only is the green industry beaten and bruised by the housing depression, it is also working through some profound demographic shifts.
“Baby Boomer” brands and industries are re-adjusting to the new reality the core customer base is aging and maintaining relevance with the next generation is a challenge. The housing depression caught many by surprise. The fact that the Baby Boomers were aging and being replaced by a historically small cohort of Generation Xers is not a surprise. We knew this period was coming. In many respects, the Great Recession accelerated the shift.
For some brands and industries, the fight is for outright relevance. Consider Harley-Davidson. According to our observations, the post-Baby Boomer cohorts (Generation X and Generation Y) are not particularly passionate about loud, expensive motorcycles. The brand is strongly linked to a lifestyle and product features that are less appealing to the younger set.
Despite the demographic malnutrition, the gardening industry is fortunate. We have relevance. The reasons consumers buy plants (and the products that go with them) are identical to the purchase-drivers 15 years ago. When we talk to 20-somethings and 30-somethings, the aspiration to own a home, raise a family and have a nicely landscaped yard is alive and well. This is such a profound part of the American experience our DNA so to speak that even the worst economic downturn in our lifetime could not shake it.
Will the younger generation emerge from their smartphones and buy our products? Of course they will. Will their technology addiction change the way they want to interact and buy? It already has.
Fears abound that this emerging generation is so immersed in the virtual that the actual is irrelevant. The same fear was voiced at the advent of the personal computer. Twenty years ago, parents and sociologists were voicing concerns about the “technology addiction” and its insidious impacts. For most people, something happens to them around age 40. A switch is flipped. At that age, people have more disposable income and spend more time at home, especially if they have kids.
Our core issue is that our immediate “replacement market” is historically small. Household spending on all home improvement peaks at age 55 and declines steadily after that. The leading edge of the Baby Boomers today is over the age of 60, and the immediate replacement market, those ages 40 to 55, is historically small. With the economy wreaking havoc on the ability of younger people to leave the orbit of their parents, household formation has fallen off a cliff. Consider these facts: In 2001 a staggering 3.5 million new households were formed. By 2005, that number was 1.6 millionwithin historical norms. In 2010 (Are you ready?), only 357,000 new households were formed. Ouch.
There’s not much we can do about the puny number of Generation Xers and household formations. The prize is the humongous number of Gen Y and Gen Z. There’s a lot of them, but we have two significant headwinds tempering the predictable cycle of household formation: graduate from school/college, get a job, get your first place, get married, buy a home, have kids and buy plants.
A first headwind is that the period between “graduate from college” and “get a job” has been severely disrupted. The most telling statistic is that as of 2012, 46 percent of those ages 20 to 24 still live with their parents. Nearly 20 percent of those ages 25 to 29 still live at home.
The other headwind is debt. In 1998 the average college debt after four years was $10,000. In 2011 (constant dollars), the average was almost $30,000. Note that I said average. Stories abound of four-year college graduates owing $80,000 at graduation with few job prospects or a job with a starting salary that makes paying off the debt seem unachievable.
The solution is hotly debated in the political theater, and it is jobs. The U.S. has historically been a jobs-creating engine, and it has stalled since the end of the Great Recession. Putting more money in peoples’ pockets is the only solution.
The other elephant in the room is median household income. While rising rapidly from 1982 to 1999, that number has barely budged (in constant dollars) since then. As a country, our personal incomes have been stagnant, while our expenses have not. The primary reason is that while take-home pay has remained stagnant, the costs of benefits (like health insurance) have skyrocketed. You’ve gotten a “raise,” but it has gone to pay benefits and has not wound up in your pocket.
Without question, we have a number of demographic and macroeconomic headwinds impacting the industry. The upshot is that the primary reasons people buy plants have not changed. It is part of the American experience buy a home and strive for some curb appeal.
The Harley-Davidson Effect – it’s time to reframe the discussion around relevance.