Contrary to conventional wisdom, there's been no fundamental rewiring of the consumer. The modern consumer is a construct of growing economic pressure and increasing competitive options.
The consumer is changing. They are more capricious and less loyal. They have less time but are more conscientious. They shy away from stores and prefer experiences over products. Today’s consumer is an entirely different animal—and unrecognizable from their peer from the good old days. This brand of conventional wisdoms has been proliferating in the marketplace for a few years now. It appears as if there has been a seismic shift in the consumer’s mindset—and choices—a shift that has left the market asking: “Who is this brand-new consumer?”
There are even more clichés surrounding the millennial consumer. They are often branded as being more narcissistic, more idealistic, more socially-conscious, and more experience-oriented than any of their preceding generations. They have even been blamed for ruining everything from movies to marriage!1 They seem to have broken the mold of their similar-aged cohorts of past eras.
Amid this confusing and fast-changing narrative about the changing consumer, we paused to ask ourselves some hard-hitting questions to cut through the noise and arrive at the truth. Has the consumer fundamentally changed? If yes, in what ways have they changed? Is there a seismic difference in the changes that we are witnessing? More importantly, is the hysteria in the marketplace obscuring a much deeper and more fundamental change in consumer behavior?
It is with these questions in mind that we conducted a year-long study to go beyond the headlines and unearth more profound observations about the consumer that might have been either missed or misunderstood in the midst of the hype.
Our findings debunked many conventional wisdoms about the new-age consumer. What we learned is that the consumer hasn't fundamentally changed, but to the extent they are changing is because the environment around them is evolving, characterized by economic constraints and new competitive options. They’re changing because of the financial constraints they find themselves in. This, in turn, has been triggered by a rise in nondiscretionary expenses such as health care and education and the growing bifurcation between income groups. They’re also changing in reaction to the abundance of competitive options available to them, made possible by technology.
It’s this swirl of financial and marketplace dynamics that is heavily influencing the behavior of today’s consumer as opposed to a fundamental rewiring.
Understanding the consumer: Our approach
We undertook a yearlong journey to study the consumer. We scoured government data; talked to clients, industry leaders, and analysts; conducted primary interviews; and surveyed a representative sample of more than 4,000 consumers from the United States. Working with Deloitte’s Center for Consumer Insights, we conducted primary research, leveraging 450 billion unique points of location data and more than 200 billion points of credit card transactions. Our goal was to examine the current state of the consumer as well as to study their behavior and underlying attributes to see if there were nuances and intricacies that were being missed.
We adopted a two-pronged approach to our research.
First, we zoomed out to study the macro demographic, cultural, and economic trends related to the US consumer. Our focus here was not on behavior but on broad trends that impact behavior. It’s similar to the approach we took in an earlier study, The great retail bifurcation.2 In that, we looked at the income and expenditure data to examine whether and how the economic situation of consumers had changed and the implications of that change. But this time, we wanted to go deeper: We wanted to dig into other broad categories of demographics and regional changes to see where they live, their ethnicity and race, and how factors such as economic situation and health status are driving changes in consumer behavior.
Second, we examined primary data on the consumer’s changing demographics and economics to understand consumer behavior—not just their overall behavior but their micro-behaviors, which differ, sometimes substantially, within emerging segments. We looked deeply at how they spend their money and time, where they go, and what’s most important to them.
In this report, we have highlighted the most intriguing insights from our study to put together the construct of a consumer who in some ways is changing and in other ways isn’t really changing at all.
The changing consumer: Deconstructing demographic dynamics
A grasp of demographics is critical to understand what makes the world—and the consumer—tick. We are our demographics. This doesn’t mean that the consumer can be reduced to the sum of their individual demographic categories. It means that they’re a creation of the complex interplay of ever-shifting demographic forces that create unique needs, cultural biases, and define consumer behaviors.
To understand how, where, and why the consumer is changing, one must understand their underlying demographics, which include much more than just life span, fertility rate, race, and ethnicity. Health, culture, economics, and education are all critical dimensions of demographics—as are geography, regionalism, and the urban-suburban-rural divide. Understanding these changing demographics helps shine the light on any emerging pockets of opportunity.
Millennials are the most diverse generational cohort in US history.
A diversifying consumer base with diverse needs
There is a seismic shift that has taken place in the United States over the past 50 years. The population has become increasingly heterogeneous: Millennials, now representing 30 percent of the population, are the most diverse generational cohort in US history, with roughly 44 percent consisting of ethnic and racial minorities. In comparison, only 25 percent of baby boomers belong to ethnic and racial minorities [figure 1].3
This increased diversity, while most pronounced in the millennial generation, is not a uniquely millennial attribute. The shift in the ethnic and racial makeup of the United States has been underway for some time now, with the consumer base becoming increasingly diverse. The current racial makeup of the United States [and the consumer] is barely 50 percent white and the number is likely to continue shrinking.4 The non-Hispanic white population is projected to drop from 199 million in 2020 to 179 million in 2060—a decline of 10 percent—even as the US population continues to grow.5
This shows that we have moved to a diverse, splintered, and heterogeneous consumer base with a much broader and varied set of demands and needs. Moreover, the upcoming Gen Z cohort is likely to bring further diversification of the consumer base along racial and ethnic lines.
Young consumers are moving toward city centers
The old axiom of politics, “All politics is local,” is also applicable to consumer trends. Where the consumer lives—or their geography—further shapes their needs and demands.
For much of the late 19th and early 20th century, Americans settled in cities in pursuit of factory work. Following World War II, families fled cities to suburbs that epitomized the American Dream—a few kids, a dog, and a house with a white picket fence that the working-class American could suddenly afford.6 This demographic transformation radically changed the retail landscape and the consumer.
The United States has moved to a more diverse, heterogeneous consumer, with a much broader set of needs.
Looking at geographic data from 2000–2014, we see that the trend of movement to the suburbs is still intact. Suburban life appears to be flourishing, with suburbs witnessing a net population growth and cities and rural areas seeing a decline.7
However, within this geographic data, gradations are beginning to appear, bringing with them further splintering of the marketplace. Rather than leaving urban centers [which was characteristic of the baby boomers], young consumers appear to have reversed course and are moving closer to the urban core—to city centers—possibly drawn by proximity to work and cultural activities.
Now, to a degree, one can argue that this trend is part of the general pattern—that when the younger consumers finally do settle down and start families, they will follow in the footsteps of their predecessors and move to the suburbs. However, the data shows a significant jump in the population growth rate of younger consumers in and around cities in the decade beginning 2010 [18 percent], as opposed to the declining growth rate in the previous decade—2000–2009 [–4 percent].8
This reverse trend of movement toward city centers is adding to the complexity of the consumer landscape, just as the postwar migration to the suburbs significantly impacted power and the distribution of money in the mid-20th century. It’s critical to monitor these migratory patterns as they influence the consumer’s decision-making and purchasing behavior across a broad set of categories, from rent to personal care products.9
Regional migration is fragmenting the consumer base
Geography isn’t simply urban vs. rural. There are also broader regional population trends at play—the movement of people within the United States—which shape geographic markets. As the census population estimates show, the migration of people from the Northeast and Midwest to the Southeast and to the West continues to be a trend.10
However, once you dive beneath the surface and examine the internal migration trends through the lens of age, stark differences begin to emerge. Baby boomers [many now in retirement mode] are moving to Florida and Arizona, which claimed eight of their top 10 metro destinations; Gen Xers are relocating to Texas, where five of their top 10 metro destinations lie; and millennials are migrating to Colorado and Florida, which contain five of their top 10 metro destinations.11
This trend is fragmenting the consumer base further, as each age cohort follows a different debarkation and migration pattern. It also means that each generational cohort brings its own set of needs and demands to the region they migrate to, further amplifying the differences among consumers in various parts of the country. If you take these different lenses—race and ethnicity, urban vs. rural, and geography—in conjunction, it is increasingly evident that the consumer can’t be thought of in simple, generalized ways. Instead, we need to look at them through a kaleidoscope of factors to create a more complete picture of the dynamic consumer.
The consumer is more educated, and is spending differently
We looked at other shifts as well—for instance, cultural influences—to understand ways in which the consumer has changed. Over the past 20 years, the percentage of the population with college degrees or higher has increased significantly, though not uniformly—white and black Americans with a college education have increased by 12 percent and Hispanics by 7 percent.12
As a result, we’re moving toward a more educated and knowledgeable consumer base with different spending patterns. However, the cost of education eats into discretionary funds, influencing how consumers spend their money on categories such as apparel, food away from home, and furniture. 13
People are buying homes and getting married later—or never
Demographics, migration patterns, and education levels are not the only factors evolving. Homeownership is a key life cycle milestone that also impacts consumer behavior. There has been a marked drop in the percentage of consumers choosing to own homes and many of them are waiting longer to buy homes. Between 2007 and 2017, the percentage of homeownership fell from 68 percent to 64 percent.14 One possible consequence of tougher lending standards could be the rise in the median age of first-time buyers to 32 years [from 31 at the start of the period], an increase of 3 percent.15 Digging deeper into the median income figures of homeowners, we found that the percentage of owners with above-median income slipped to 78 percent in 2017 from 83 percent in 2007, which suggests that homeownership is no longer an essential part of the American Dream.
Marriage, another life cycle milestone, continues to evolve. Between 1997 and 2017, marital rates among whites, Hispanics, and blacks fell from 59 percent, 54 percent, and 39 percent to 55 percent, 50 percent, and 35 percent respectively.16 The only exception to this downward trend were Asians, whose marriage rate increased from 58 percent in 1997 to 61 percent in 2017; the trend has been relatively steady since then.
Between 2007 and 2017, income growth for the high-income cohort rose 1,305 percent more than the lower-income group in the United States.
Not only are fewer people marrying, they’re also delaying marriage: In a single generation, the median age of first marriage has risen from 26 to 28.5 years.17 The effect of this delay ripples through various other life cycle milestones, such as an increase in the average age of women having their first children—up from 21 years in 1972 to 26 years in 2016.18
These changes in key life cycle milestones potentially influence how consumers spend their money at retailers across categories as spending takes place at later stages.
The economic divide is deepening
In any discourse on the consumer, it would be remiss not to mention their changing economic situation. As we first highlighted in The great retail bifurcation,19 there is a deepening economic bifurcation between the top 20 percent income earners and the rest of the population—a divide that has a huge impact on consumer behavior.
Between 2007 and 2017, income growth for the high-income cohort [>US$100,000 in mean household income] rose 1,305 percent more than the lower-income group [