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How are consumer habits changing?

Smartphones are changing what and how much we buy

Recent studies reveal that consumer spending habits – particularly within the millennial population – are moving away from owning things and more towards paying for services and experiences. But how far does this trend reach past the millennial generation?

The struggles being faced by our beleaguered retail industry have been well documented in recent times, resulting so far in a number of high profile failures and a long list of firms struggling to stay profitable. In the past, high streets were well represented by the likes of BHS, Woolworths, Maplin, Comet and Toys R Us, most of which had been around for well over 50 years. There are a number of reasons affecting high street retailers today, from online shopping to expensive and long term property leasing. Slowing levels of demand for certain products is another factor, making it difficult for retailers to pass on increasing input costs to customers in order to maintain profit margins.

It could be argued that the now common smartphone is behind much of the decline in high street retail and for the aspiration to acquire “new stuff”. The smartphone makes it possible to buy things online very quickly and easily (too easily in some cases!), but that is only one part of it. 

Addicted to our phones

It would appear that in this online world, our time is increasingly being spent looking at a hand sized screen to interact with one another, satisfy our quest for ever more knowledge and news, and to keep us generally entertained. As a result, we no longer need to acquire as many physical items that in the past were used to occupy our spare time. Indeed, mobile app spending surpassed over $100bn in 2018, a 75% increase since 2016 according to recent data. 

When we consider that most people in the developed world – not just the aforementioned millennials – now own a smartphone and actively embrace the on-demand culture, is this change in spending habits entirely surprising?. To perhaps add further evidence to the argument, Facebook recently introduced a feature which allows users to nominate a Charity to receive donations from friends and family instead of receiving a Birthday present. This raised $300 million for over 750,000 non-profit organisations in its first year!

There is another angle to consider as well – consumers are becoming much more environmentally conscious in their purchasing decisions. People now care about where things are produced, the materials used to make them and the working conditions suffered by those involved in the manufacturing. For example, consumers are increasingly questioning whether they can really justify buying yet another t-shirt that they don’t need, knowing that it requires 120 litres of freshwater and 0.1kg of C02 (which in volume terms is equivalent to about 2 bathtubs) to produce? 

A revolution in what we choose to own

Taking the topic a step further, I wonder what effect this behavioural shift will have on the auto industry. The days of the good old internal combustion engine appear numbered and these old, dirty, products are to be replaced with cleaner electric alternatives. But the way we use vehicles in the future is also expected to change radically. One day soon, rather than shelling out many thousands of pounds to buy and own a car, we should be able to simply order one through our smartphone on a pay per use arrangement. And if driverless cars become a safe way to travel, no longer will we need to pay for insurance and general vehicle maintenance. Should this become reality, demand for cars will surely slow.

In conclusion, people will always need things such as clothes, furniture and certain electrical goods, but at the margin our discretionary spending habits appear to be evolving.

Identifying trends like these and seeking to understand the impact they will have on economies, industries and individual companies alike is at the forefront of active investment management. At Quilter Cheviot, we are continually thinking about the future and how best to position our clients’ portfolios to benefit from the many changes we will all face.

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