A few weeks ago I gave a presentation to the investment committee of a large financial institution. They manage over $20Bn of the their client’s money. Having discussed many of the topics in these Newsletters, they asked the obvious question. Knowing what I know, where would I you put their clients money?
The chart below shows the size of the European consumer market historically and according to the latest United Nations forecast. It is a population forecast but as a marketer I do not see populations but markets. The chart tells you a little about the investment opportunities, or the lack of them, in the future.
They can grow from the increased disposable income per head. After the global financial crisis, European living standards went down from 2010 to 2013. In real terms they have only been growing at 2% per year since then. Finally they can compete for a share of total expenditures. The markets are going to become a lot tougher for them. Consumers will have more power.
Finding the Losers
The investment committee asked for companies that would definitely decline. They could still make money. They can sell shares that they do not have, for delivery next year. When they have to complete the deal they would go out and buy the shares at the then lower price. Within the total market it is clear that the youth market is not the place to be. Both the under 25 and under 15 age markets peaked around 1970. They have now been declining for fifty years. They are already down by 30% from their peak.
They suggested investing in the nappy business. The number of babies is still declining, especially in Japan. Unicharm is a huge Japanese nappy maker and looked like an ideal investment. Of course the stock markets are not stupid and the share price has factored this in to an extent. But Pew Research of America claims there are now more adult diapers sold in Japan than ones for infants and children. Maybe it won’t decline as predicted. They are also not focused exclusively on Japan. They are growing in other south East Asia Countries.
Please go to this site to see a fashion show for adult nappies:https://www.glamour.com/story/scary-trend-japanese-diaper-fashion-show
Be warned the article is pretty ageist.
The Over 65 Market
The largest part of the European market, the working age group of 25-64 year olds, peaked in the last decade. The only European market that is still growing are the over 65’s , the Third Agers. They should provide the only growth opportunity and it will last another 30 years.
There is an investment problem. We need to find companies focused exclusively on these segments. Alternatively we can find ones that are able to adapt their product and services to serve the old whilst not losing the other age groups. Focused companies tend to aim at the top end of the age brackets. They build care homes or day care centres. They build restaurants for the over 90’s.
Panasonic in Japan is adapting their home appliances to the needs of older people. The Japanese are not tall. In their 50’s the average housewife is only 157cm tall. By the time she is in her eighties she will have lost another 5cm. Panasonic are developing new ranges of refrigerators for them. These are shorter and have lower shelves. They are also developing lighter vacuum cleaners. These are more suitable for older people to carry upstairs. As a separate range it should not interfere with their younger customers’ purchases.
The aggregate data for the European Market hides a lot of variation within. The German, Italian and Spanish Markets are already ahead of the average. In Germany the over 65’s have been the only growth market for some time. That market is forecast to plateau and then decline in only 10 years’ time. This is a limited, time boxed, opportunity. After that the overall market and all age based segments will decline.
As a final note of caution remember these are the UN Forecasts. Those from the University of Washington show much steeper population declines.
Property Investment
In Japan currently 14% of all houses are empty. These are mostly in rural areas. Urbanization has continued even though Tokyo is already a city of 36m people. However there are estimated to be 10% of houses abandoned even there. This is partly due to the idiosyncrasies of Japanese property ownership and taxes. But overlaying that is a structural shift in housing needs.
In 1960 only 16.5% of households were single person. That more than doubled to over 38% in 2020. Half of the single person households are people with a job. The other half, or roughly 18% of all households today, are pensioners living alone. Young people entering the job market and retirees tend increasingly to live alone. The biggest group of men living alone are between the age of 25 and 34. These are the ones entering the job market. Only 20% of young women live alone. But over half of all women living alone are over 75. These are the retirees.
The Japanese model was always of multi-generational families living together. A couple would take care of their parents and their children. The burden could be shared with siblings. The collapse in fertility means less people have a brother of sister to share the care of their parents. The resultant pressure has led to a collapse in such arrangements by a half. The good news for Panasonic is that the number of households is increasing. Many of the new households are being formed by people over 65. They will need fridges and vacuum cleaners.
Would I buy property in a country with low fertility? I certainly would be interested in one-bedroom apartments. There will always be a market for some large houses. I am not sure that I would invest in a development of five bedroom homes.
Competitive offerings and niche strategies will be the future of marketing. Firms will have to be creative in finding opportunities. They represent investment cases for my institutional hosts. Whatever else happens, the power will increasingly shift to the over 65 consumers.