Consumer behaviour is constantly evolving. As investors, we should take note of the current trends in consumer mindsets around the world and how this can affect their investments. One of the current biggest developments is the shift of expenditure away from material things to meaningful experiences.
The “experience economy”, as it is now called, includes eating out at restaurants, going to cinemas and travelling for holidays.
The extent of the shift in the West
Barclays reported that in the UK, Britons are spending more of their money in restaurants and cafes. The number of coffee shops grew from 7000 to 17,000 in 2010.
Another sector of the “experience economy” that has reaped the benefits of the consumer mindset change are cinemas and the entertainment industry.
Holiday spending in the UK has also risen as more people take more trips each year.
Expenditure on experiences is not just limited to the UK. America has also seen similar trends over the last three decades. The share of consumer spending on experiences relative to total US consumer spending has increased by around 70%.
Here in Asia
Boston Consulting Group reported that in 2013, nearly 55% of the US$1.8 trillion spent on luxuries was actually spent on luxury experiences. This shift, they noted, was even more apparent in Asia.
One of the main reasons is the focus on social media and status. Photo-worthy experiences provide the rich in Asia a chance to flaunt their wealth through social media. The changing mindset and the availability of the “sharing economy” have also led to a lesser need for ownership of material things.
What does it mean for businesses?
Traditional luxury goods retailers are the most likely to take the biggest hit as this changing mindset matures. Luxury watches and clothes sales will face severe headwinds as more consumers shift expenditure away from “expensive things” to “meaningful experiences”.
However, one way that retailers can adapt to suit this shifting demand is to create an “experience” for shoppers. Even traditional brick and mortar retailers can create pleasant experiences for patrons. This can be achieved by offering great services or creating a unique shopping experience that can attract customers into their shop.
How can investors benefit?
As investors, this changing consumer mindset means opportunities aplenty as we look for companies that can and are benefiting from the growing consumer expenditure in the “experience” sector. Airlines, hotels, and entertainment industries are set to benefit the most from the shifting consumer behaviour.
On the other hand, investors should also be wary of companies that may be harshly affected by this changing demand. Companies that have greater exposure to luxury goods and are unable to adapt may prove to have challenges in the future.
The Foolish bottom line
The growth of the “experience economy” across the globe will have varying effects on different industries. As investors, we should not overlook the nature of consumer behaviour. Being familiar with these trends can be vital in understanding a company’s future prospects.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.