D E B O R A H W EI N S W I G M a n a g i n g D i r e c t o r ,
F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m
U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9
C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6
GenerationZ(GenZ),bornafter2000,isthefirstgenerationnottohaveknownlife without technologies and services such as smartphones, iPads, Facebook,Instagram and WhatsApp. Exposure to these technologies and services hasinfluencedthisdemographic’sbroaderexpectationsandbehaviors.
3) The on-demand economy, ranging from video-on-demand servicessuchasNetflixtodine-on-demandappssuchasUberEATS,ismakingGenZthemostdemanding,leastpatientgenerationever.
US consumers spent $829.5 billion onGen Zers in 2015,we estimate. Around$66billionofthattotalwasspentondiscretionarycategories,whilemostof itwas spent on essential or semidiscretionary categories such as housing, food,clothingandtransportation.
Gen Z: Get Ready for the Most Self-Conscious, Demanding Consumer Segment
KEY TAKEAWAYS: GET READY TO COMPROMISE—BECAUSE YOUR NEXT GENERATION OFCUSTOMERSWILLNOT...............................................................................................................17
EXECUTIVESUMMARYThis report provides an overview of the population, spending power andbehaviors of Gen Z, which we define as those born after 2000. Thisgenerationfollowsthemillennials,whowerebornbetween1980and2000.
Gen Z is the first generation not to have known lifewithout technologiesand services such as smartphones, iPads, Facebook, Instagram andWhatsApp.Butitisnotjusttheirstatusas“digitalnatives”thatdefinesGenZers; what ismore important is how exposure to these technologies andserviceshasinfluencedtheirbroaderexpectationsandbehaviors.
• GenZerstendtoattachgreatimportancetopersonalappearance:theyarethefirstgenerationtogrowup“inpublic”online,i.e.,documentingtheir liveson socialmedia.Evidence suggests that this is leadingevenyoung children to use beauty products and is raising bodyconsciousnessamongyoungpeople.
• ThepressurespresentedbysocialmediaaresimilarlyencouragingGenZers to spend on leisure services, such as vacations, dining out andgoingout. Thecompulsion tobeperceivedon socialmediaas livingafun, interesting,experience-rich life—andtheconsequentspendingonleisureinsupportofthat—iswhatwecall“theInstagrameffect.”
• Theon-demandeconomy,rangingfromvideo-on-demandservicessuchasNetflixtodates-on-demandappssuchasTinder,ismakingGenZthemostdemanding, least-patientgenerationever; this is the“always-on,on-demand”generation.
GenZmadeupanestimated26%ofthetotalglobalpopulationin2015,andthatshareisexpectedtopeakat33%in2020.InWesterncountries,GenZ’sshare of the population is lower: in the US, it was 19% in 2015 and isexpectedtoriseto25%in2020,whileintheEU,itwas16%in2015andisexpected to rise to 21% in 2020, according to our analysis of statisticsoffices’populationprojections.
USconsumersspent$829.5billiononGenZersin2015,weestimate.Thisisequivalent to 6.8% of total US consumer spending last year, and was an8.1%increasefrom2014.Weestimatethataround$66billionofthe2015totalwasspentondiscretionarycategories,whilemostof itwasspentonessential or semidiscretionary categories such as housing, food, clothingand transportation. Gen Z’smembers have not yet all been born, so thisgeneration’sspendingpowerwillonlyriseintheyearsahead.
INTRODUCINGGENZGenZisnotthebiggestsegmentofthepopulation,butitsyouthfulnatureinevitably means it is the fastest-growing segment. Based on ourcategorization, it is a generation whose members have not yet all beenborn. But there is no consensus on the definition of Gen Z. Somecommentators suggest that this generation includes only those bornbetween the late 1990s and the mid-2000s. However, we think anapproximate20-yearagespanmakes thisgenerationmorecomparable to
TRACKINGTHETECHTHATISDEFININGGENZThepaceof technological changeover the past twodecades has been sorapidthatitisworthrememberingthatGenZisthefirstgenerationtogrowupalongside—andsobeshapedby—fast-changingconsumertechnologies.These devices and services provide benefits that include having instantaccess to almost all of the world’s knowledge; being able to find a dateonline;havingon-demandaccess to theworld’smusic,booksandmovies;andbeingabletoshopforanear-unlimitedrangeofgoodsfromhomeandthenhavethosegoodsdeliveredwithinanhour.
To illustrate how Gen Z has grown up with what the rest of us mightconsider “new” products or services,we provide a table listing significanthardwareandsoftwarelaunches,bydate,below.Thislistfocusesonthoselaunches that we consider game-changing and considers only the periodsincethefirstGenZerswereborn,in2001.
It is,bynow,almostsuperfluoustonotehowattachedyoungeragegroupsaretotechnology.But,fortherecord,wechartbelowsomekeyfindingsonthefrequencyofInternetusageandcellphoneaccessamongUSteens.Olderteens tend tohavegreateraccess thanyounger teens to smartphones,butthe gap is not major: some 68% of American 13–14-year-olds have asmartphoneversus76%of15–17-year-olds,accordingto2015PewResearchCenterdata.
Gen Z’s innate familiarity with technology is not in itself especiallyimportant,althoughtechfirmsandonlineretailersarelikelytobenefitfromthestrongdemandthatthiscustomerbasewillgenerateintheyearsahead.What is more relevant for a wide range of industries is how Gen Zers’experience growing up with this technology has affected their behaviorsandattitudes.
The new technology products and services listed above have broadenedconsumers’rangeofchoiceandquickenedthepaceoflife.Itishardnottosee these creating amoredemanding, image-conscious consumer. Below,weidentifythreesignificantthingsthatcharacterizeGenZ,allofwhicharisefromvariouselementsoftechinnovation.
And as new tech, such as virtual reality, emerges, the characteristics thattypifyGenZmaychangeandgrowinnumber.
These three characteristics are the focus of our subsequent discussion.After that, we summarize the scale and projected growth of the Gen Zpopulation,withafocusontheUSandEurope.
THREEDEFININGCHARACTERISTICSOFGENZHere,wedelvedeeperintoourthreenotedcharacteristicsofGenZers:theimportance they attach to self-image, their desire for leisure services andtheirexpectationsofimmediacy.
1.TheImportanceofSelf-Image
Inthe21stcentury,AndyWarhol’snotoriouspredictionthateveryonewillbefamousfor15minuteshascometrue,andthensome.Today,everyonecan document their lives as publicly as any celebrity, for as long as theywant,acrossamultitudeofsocialmediaplatforms.Weseesocialmediaandtheselfiecultureascreatingagenerationthat ismorefixatedonpersonalappearance and personal image (or even personal “brand”) than anypreviousgeneration.
• In a 2015 survey of US teenagers by advertising agency J. WalterThompson,82%ofthosepolledsaidtheythoughtcarefullyaboutwhatthey post on social media and 43% said they had regretted sharingsomethingonline.Fully71%ofteenssurveyedsaidtheyuseFacebook,themostpopularsocialnetwork.
• Accordingtoa2013surveybytheAmericanPsychologicalAssociation,58%of teengirls and55%of teenboys in theUS reported that someaspectoftheirappearance isasomewhatorverysignificantsourceofstress.Some30%ofteengirlsand13%ofteenboyssaidtheyfeelbadwhen comparing themselves to others on social media. And 39% ofteengirlsand29%ofteenboyssaidthathowothersperceivethemonsocialmediaisasignificantsourceofstress.
Itisnosurprise,therefore,thatGenZersarehighlyimageconscious.RecentdatafromMintelconfirmtheextenttowhichUSteensandtweens(thosein the years approaching teenagehood) are concerned about theirappearance.Itfoundthat90%ofgirlsand80%ofboysages9–17intheUSareusingbeautyproducts:
• Some54%of12–14-year-oldgirlsusemascara,eyeshadow,eyelineroreyebrow pencil, while 45% use foundation/concealer, 30%blush/bronzerand10%hair-coloringproducts.
• Among boys ages 12–17, 44% use facial cleansing products, 42% useperfumeorcologne,and41%uselipcareproducts.Some29%ofboysages12–17usehairstylingproducts.
Similarly,teensappeartohaveaheightenedsenseofbodyimage.In2016,advertisingthinktankCredossurveyedBritishmaleschoolpupilsages8–18and found that 56% of them think eating disorders are an issue for bothsexes.Oftherespondents,55%saidtheywouldconsiderchangingtheirdiettoimprovehowtheylook.Socialmediawascitedby57%ofthosepolledasa source of pressure to look good, ahead of advertising (53%) andcelebrities(49%).
Socialmedia isexposingGenZtothestars’aspirational lifestyles,and it iscreatingnewcelebrities in itsownright.Wethinkboth factorsareaddingpressuretothisgeneration.
Epitomizing the convergence of social media, celebrity and personalappearance is theKylieCosmeticsbrand fromKylie Jenner,a socialmediastarandmemberoftheJenner/Kardashianrealityshowfamily.Asidefromherbranded rangeof cosmetics, Jenneroffersanaspirational smartphoneapp that features beauty tutorials and style advice as well as “premium”paid-forcontentthatisdescribedasan“all-accesspasstoKylie’slife.”
The pressure to look good on social media platforms such as Instagramexploded intopublic attention inNovember 2015,whenAustralian socialmedia star Essena O’Neill recaptioned her Instagram photographs withhonest annotations thatwere designed to call out the artificial nature ofheraspirationallifestyleimages.Amonghernewcaptionswere:
Wethink socialmediahasalso ledGenZ to valueexperiencesmore thanothergenerationsdo,asthetechnologyhasheapedpressureonthemtobeperceived by their peers as leading interesting, fun, experience-rich lives.Youngerconsumers tend toenthusiasticallydocument their livesonsocialmedia,andmanyofthemwanttobeseentraveling,attendingconcertsandsportsevents,diningout,andenjoyingotherleisureactivities.TheresultiswhatwecalltheInstagrameffectonconsumerspending.
EvenFacebookCEOMarkZuckerberghasacknowledgedthepressuressocialmedia canplaceonconsumers.At theMobileWorldCongress2016event,weheardZuckerbergadmitthatsocialmediacanpressureuserstopresent“super-curated”personalitiesonline.Andwe think thispressure is likely tofallmostheavilyonGenZ,thefirstgenerationevertogrowupdocumentingtheirlivespubliclyonline.
A second factor boosting spending on experiences is mobile connectivity,whichismakingiteasierforconsumerstofindandbookservices.AppssuchasYPlanallowuserstodiscoverleisureeventsandactivitiesintheircity,andonline and app-based booking intermediaries—such as Just Eat andDeliveroo in food service—are making it easier to spend on services. GenZers’innatefamiliaritywithtechsuchasmobileappssuggeststhattheywillbeatforefrontofthistrendoffindingandbookingservicesonline.
• In theUK in 2015, consumers grew their spending on recreationalservices (such as tickets to sports events and fitness centermemberships) by 15.9% and their spending on cultural services(such asmovies and theater) by 6.7%, according to the Office forNationalStatistics.Incontrast,totalretailsales(representinggoodsratherthanservices)increasedbyonly1.9%.
• In the US in 2015, consumers increased their spending atrestaurantsby7.4%andtheirspendingathotelsby7.3%,butretailsales(exgasoline)grewbymuchless,just3.5%,accordingtotheUSBureauofEconomicAnalysis.
Whilethesefiguresreflectallconsumerspending,notjustGenZ’sspending,wethinkthattheforcesdrivingleisurespendingarelikelytobestrongerforGenZ than theywillbe forolderagegroups.GenZersare,andwillalmostcertainly continue tobe, theheaviest users of technologies, including appsthatallowuserstofindandbookleisureservices.
3.On-DemandEconomyBegetsExpectationsofImmediacy
Theon-demandeconomyhastransformedthedeliveryofproducts,services,information and entertainment.While themajority of consumers enjoy atleastsomeofthebenefitsoftheon-demandeconomy,GenZistheonlyagegrouptohavegrownupwith itas itemerged.Asaresult,weforecastthatGenZerswillestablishthemselvesasahighlydemandingconsumerbase.
Figure5.TheOn-DemandEconomy,SelectedElements
Source:FungGlobalRetail&Technology
Survey after survey finds that younger age groups are emerging as theheaviestusersofon-demandservices:
• In the UK, Gen Zers are the heaviest users of video on demand,according tomeasurement firmNielsen; in the third quarter of 2015,some49%ofGenZers surveyed said theyuse videoondemanddailyandafurther34%saidtheyuseitafewtimesaweek.
• Among adult age groups in theUS, the youngest are by far themostlikely to use ride-hailing apps such as Uber, according to the PewResearch Center. Some 28% of US 18–29-year-olds (the youngest agegroup Pew measured) have used such apps, versus 15% of the totalpopulation.Pew’sstudyalsoindicatedthatthereisasteadydecreaseinusagewithage.
• Pew also recorded a consistent decrease in usage of speedy deliveryserviceswithage in theUS,withsome56%of theyoungestadultagegroupsurveyedusingsuchservices.Similaragepatternswererecordedfor usage of Internet services such as grocery e-commerce and hiringsomeoneonlinetodoataskorerrand.
• In 2014, marketing agency HavasWorldwide conducted a 29-countrysurvey,andfoundthatyoungeradultconsumersweremuchmorelikelythanolder consumers to agreewith the statement “I think I could goonlineandfindsomeonewillingto lend/rentme justaboutanything.”There was a similar pattern in responses to questions aboutmembership or anticipated membership in sharing services, such asaccommodationorautomotiveservices.
The near-unlimited choice of products, services, information andentertainment has resulted in a consumer base that expects immediategratification.Reflecting thisdemand for immediacy, a2015Canadian studybyMicrosoft found that the average person’s attention span has fallen toeightseconds,downfrom12secondsin2000—whichcomparesunfavorablytotheaveragenine-secondattentionspanofagoldfish.Microsoftattributedtheshift tothemassadoptionofsmartphonesandtheconsequentalways-onculture.Thestudyfocusedonthoseages18andover,butfoundthattheyoungest adult age group struggles with concentration, which implies thattheproblemsarelikelytobeevenmoreacuteforGenZers,someofwhomarenotyet18.
• The proportion of those surveyed in the Microsoft study that had a“highattentionspan”increasedsteadilywithage.
Microsoft’s survey also found a correlation between tech usage andattentionspan:themoreheavilyconsumersbrowsetheweb,viewmultiplescreensatonce,usesocialmediaoradoptnewtechnologies,thelowertheirattentionspanswere.WecaninferfromthisthatGenZwillalmostcertainlyhavealower-than-averageabilitytofocus.
It is not simply that younger people are more likely to be constantlyconnectedtotheweb;theyarealsomorelikelytobeusingmultiplescreensandmultitasking.GenZers typicallymultitaskacross fivedigital screensperday, compared with just two for millennials, according to US marketingresearchersFutureCast.FormanyGenZers,itisnormaltobechattingwithafriend on FaceTime while messaging a parent via WhatsApp and perhapsbrowsingFacebook,too.Thisisthealways-on,on-demandgeneration.
GENZINNUMBERS:POPULATIONREACHES1.9BILLIONWORLDWIDEIN2015“Gen Z is set to overtake millennials!” shout headlines in marketingmagazines. Inabsolutenumbers, that isnotquite the case—at leastnot inWesternmarketssuchastheUSandEurope.
Inabsoluteterms,theUSwashometoanestimated61million Gen Zers in 2015,making the generationabout two-thirds the size of the millennialgeneration.Evenby2035, though,GenZerswill stilllagmillennialsbyalittleintermsoftotalnumbers.
AsimilarpatternisseenintheEU,whereGenZwillnotquiteclosethegapwithmillennials,eveninthenext20years. As Gen Zers are those born between 2001 and2020,byourdefinition,any increase in thisagegroupintheUSafter2020willbeduetoimmigration.
Figure6.USPopulation:GenZvs.Millennials(Mil.)
Source:USCensusBureau/FungGlobalRetail&Technology
Figure7.EU-28Population:GenZvs.Millennials(Mil.)
Source:Eurostat/FungGlobalRetail&Technology
Worldwide, Gen Z numbered 1.90 billionmembers in 2015,we calculate,basedonOECDdata;thiscomparesto2.36billionmillennials.By2020,theglobalGenZpopulationwill havegrown to2.56billionversus2.34billionmillennials.
Currently,aboutone ineveryfiveAmericans isaGenZer,andthegroup’sshareofpopulationinthecomingdecadeswillpeakataroundone-quarter.In the EU, which has an older average population, Gen Zers make up anotablysmallershareofthetotalpopulation.Globally,GenZ’sshareofthepopulation is much larger than in either of these regions, reflecting thehigher birth rates and lower life expectancies of some developingeconomies.
By 2020, Gen Z will be the third-largest age group in the US, narrowlylaggingGenXinsize.But,whilesignificant,GenZisnotsettobecomethedominantsegmentofAmericansocietyinthemediumterm.
Figure9.US:CompositionofPopulation,byGeneration
Gen Zers born 2001–2020; millennials born 1980–2000; Gen Xers born 1960–1979; babyboomersborn1946–1959;seniors/pre-boomersbornbefore1946Source:USCensusBureau/FungGlobalRetail&Technology
GENZINNUMBERS:ACCOUNTINGFOR$830BILLIONOFSPENDINGINTHEUSALONEThis year, the oldest Gen Zers are just 15 years old, whichmakes it verydifficult to pin down their spending power—in terms of either their ownspending or their influence on spending by others, such as their parents.Some research agencies have generated estimates, although, as noted
above, definitions of Gen Z differ; some firms define them as being bornfrom the mid-to-late 1990s onward versus our definition of them beingbornfrom2001onward.
• In the US, market-intelligence firm Mintel put Gen Z’s direct andindirect spendingpowerat close to$200 billion in2015; this includestheirinfluenceonparentalorhouseholdpurchases.
• In2013,MintelestimatedGenZ’sdirectspendingpowerat$44billion,based on US kids and teens receiving an average $16.90 weeklyallowance.
For comparison,American consumers spent$12.3 trillion in total in 2015,accordingtotheUSBureauofEconomicAnalysis.
Ourownanalysissuggeststhatsome$829.5billionwasspentonGenZ intheUSin2015.Thiswasequivalentto6.8%oftotalUSconsumerspendingthat year and was up 8.1% from $767.6 billion (representing 6.5% of allconsumer spending) in 2014. These figures include spendingonessentialssuchashousingandfoodaswellasdiscretionaryspending.Ourestimatesare based on US Department of Agriculture (USDA) data on average per-childexpenditurebyfamilies.TheUSDAbreaksouttypicalannualspendingperagebandofthechildpopulation.
Figure 10.US: EstimatedAnnual ExpenditureonGen Z by Families (USDBil.,LeftAxis)andas%ofTotalUSConsumerSpending(RightAxis)
BasedonUSDAdataforaverageannualexpenditureonchildrenbymiddle-income,two-parentfamilies. Data for 2014 and 2015 extrapolated from USDA figures for 2013, using averageannualconsumerpricesinflation.Source:USDA/USCensusBureau/FungGlobalRetail&Technology
education. In 2013 (latest), only 8% of the total spent on Gen Z, or $57billion, was spent on “miscellaneous” categories, which includediscretionary items such as entertainment goods, reading materials andpersonal care products. By extrapolating that 8% share to our 2015 totalfigure,we found that total spendingonmiscellaneouscategories lastyearwasapproximately$66billion.
KEYTAKEAWAYS:GETREADYTOCOMPROMISE—BECAUSEYOURNEXTGENERATIONOFCUSTOMERSWILLNOTCommentatorshaveoftencharacterizedGenZasdigitalnatives,andhavefocusedontheirenthusiasticadoptionofnewtechnologies.Wethinkthisadoption has wider importance: it is not just that Gen Zers adopt techreadily,butthatthetechhasaffectedtheirexpectationsandbehaviorsinaway that it has not affected those of other age groups.We conclude byreiterating the three significant characteristics of Gen Z that we haveidentified: they attach importance to self-image, they have a heighteneddemand for leisure services and they expect their consumer needs to befulfilledimmediately.
In short, exposure to near-infinite choice and access to near-endlessinformation makes this generation more demanding than any of itspredecessors. As Gen Zmatures, it will becomemore discerning, but itsdemandingnature isunlikely tobediluted.Wethinkbrandsandretailerswill be the ones that need to change, because Gen Z looks unlikely tocompromiseonitshighexpectations.
