Covid’s Long Term Impact on Gen Z Customers

Covid’s Long Term Impact on Gen Z Customers

“Teens are a growing segment in the multibillion dollar luxury market, and it’s not just wealthy kids …. A recent study found that 15 percent of teen purchases are designer goods, a number that continues to climb. … luxe brands have targeted teen fashionistas with ads that feature young starlets like Lindsay Lohan for Dooney & Bourke and Kiera Knightly for Chanel.”

Perhaps the mention of Lindsay Lohan tipped you off that the above quote is from a very different time – actually, 2007. Back then, teen spending was all about expensive designer brands. How things have changed. In 2020, teen spending has dropped to levels not seen in two decades. Covid has made this change even more obvious; restricted by the pandemic, teens are spending far less on food and entertainment like concerts and movies. And Covid’s not the only reason.

Every generation wants to make its own journey, usually in a very different direction than the prior one. Overall, members of Generation Z are less focused on conspicuous consumption and more concerned about the environment than their predecessors. They’ve opted to bypass “fast fashion” and shop at thrift stores. They also tend to be more pragmatic about future earnings, perhaps from having seen millennials heavily indebted to pay for college. Our grandparents or great-grandparents who saved string personifies the generation that came of age during the Great Depression. Is that really any different from members of Gen Z sharing the same Netflix account?

Even after the pandemic lifts, members of Gen Z may look back at 2020 as a watershed year that has changed their expectations for good and influenced their spending behavior for decades to come. That’s the scenario envisioned in a study presented at this year’s Jackson Hole symposium. A recent article in The Economist describes the study by Julian Kozlowski of the Federal Reserve Bank of St Louis, Laura Veldkamp of Columbia University and Venky Venkateswaran of New York University. According to the article, “people’s investment decisions are shaped by their beliefs about the future. Their risk outlook is in turn influenced by their experience, and the addition of an extreme negative shock—like covid-19—to that stock of experience can lead to a mass revision of beliefs that lasts throughout their lifetimes.”

What could the impact of Covid look like for Gen Z? One example that comes to mind is Japan’s lost decade. Following a real estate bust in 1989, Japan’s economy plummeted from its exalted position in the world economy. During the years 1991 to 2001, conspicuous consumption drastically declined, never to return to previous levels. A NY Times article from that era described how younger consumers, feeling the economic malaise “…tend to be uninterested in cars; a survey last year by the business daily Nikkei found that only 25 percent of Japanese men in their 20s wanted a car, down from 48 percent in 2000…. Young Japanese women even seem to be losing their once-insatiable thirst for foreign fashion. Louis Vuitton, for example, reported a 10 percent drop in its sales in Japan in 2008.”

Assuming they retain a bearish outlook, how can organizations engage with this next generation of consumers? Since they are digital-first, online is the first place they go for information and advice. Offering guidance, for example, articles and tools on a website or portal, is one way. Two-way interactions, either by text or on social media, is another. Traditional loyalty programs, however, are less optimal: right now these consumers know they aren’t spending enough to acquire a significant balance of loyalty points.

During the 1929 Great Depression, creativity was what kept companies in business. Movie theaters slashed prices and gave away dishes; Proctor & Gamble invented the radio soap opera. It will take creativity – and technology – to acquire this generation’s customers. Today, businesses can use analytics to quickly identify successful trends in their customer communications. And they can test their offers on limited populations using robust customer targeting.

Nobody hopes for a generational economic slowdown. But, should it come to that, it’s assuring to know that businesses have new tools that can help them continue to thrive.