Young adults are feeling the pinch – here’s how retailers are responding

A number of retailers have affirmed analysis from Commbank’s Cost of Living Insights Report which showed that financial pressures aren’t hitting everyone equally.According to the report – which used data from seven million Commonwealth Bank customers – younger adult consumers appear to be most significantly affected by rising interest and inflation rates, and are cutting spending accordingly.Meanwhile, the report found that Australians over 35 years old had increased their spending by almost eight per cent in the first calendar quarter of 2023, compared to the year prior. This was partly due to the fact that many Australians in this cohort were mortgage-free home-owners, with a savings buffer of two years or more.Australians aged between 18-24 had maintained their spending levels with the age group tending to be more reliant on parental support, and less encumbered by increasing housing costs. But, the demographic hardest hit by cost of living pressures were individuals aged between 25-34 years old.The report found that Australians between 25-29 were more likely to be in the rental or housing market,  and were subsequently making the most significant spending reductions to afford rising costs. Meanwhile, people aged 30-34 were feeling the pinch of cost of living pressures more than other age groups. Spending among 35+ year old consumers had increased by 3.1 per cent on apparel, and by 9.7 per cent on retail services for the 12 months to March, 2023.In contrast, spending for individuals under that age – and across the same categories – had declined by 8.4 per cent and 0.6 per cent respectively. Consumption is downCommbank IQ head of innovation and analytics, and report author, Wade Tubman said that there was a strong relationship between age and consumer spending.He said that, on average, people under the age of 54 were responding to cost of living pressures by reducing their spending. For people aged between 25-34 – who were more likely to be in the rental or mortgage market – he noted that the spending reduction was “marked.” “Not everyone is in the same circumstances but many of these people are starting to establish families, moving out of home or they are first home buyers. Compared to other age groups, [their] actual consumption is significantly down compared to previous years,” Tubman said.He added that there was certainly tightening of spending among families, but the reduction was most significant among singles and couples with no kids.Tubman explained that young singles and couples are more able to make changes quickly because they tend to have fewer commitments.“It’s harder for them to react and change their habits and spending as quickly,” Tubman said. Wear for their investmentShoe retailer Volley regularly collaborates with prominent brands and organisations so as to capitalise on emerging trends, and has generated a strong following among younger Australians.  Volley content and marketing manager Anna Geason told Inside Retail that the usual Volley customer is usually aged between 35-44 years old. However, she said the brand had identified fewer customers aged between 25-34 years old, which has led to a reduction in sales.She also said that there had been a change in consumer habits, whereby younger customers are tending to purchase products during promotional and sales periods. “From a broader marketing perspective, refreshing our creative approach has been a key tactic [to boost sales among this demographic] along with leaning into our brand story and heritage,” she said.“We’ve also been running more targeted promotions of some of our younger, fresher styles and collaborations to drive sales.”Brand founder and director of fashion brand Self The Label, Danielle Dona Sghaby said that she had noticed a change in the spending patterns of customers aged between 25-34.She said that millennials were still seeking stylish and slow fashion items, but that affordability was front of mind. “I predict that high quality [and] versatile sets will continue to sell successfully for seasons to come,” Sghaby said.“This type of fashion gives customers more versatility and wear for their investment which is increasingly important to our demographic.”Hunger for hospitalityThe Cost of Living report also demonstrated that there was still an appetite for hospitality, with eating out and food delivery expenditure up 8.5 per cent on the year prior.This followed data from Colliers showing that Australians were spending 27 per cent more on fine dining and restaurant services in this year’s first quarter compared to the previous year. According to the report, this growth was driven by Millennial spending.Despite March showing a 5.4 per cent increase in retail sales this year – driven largely by hospitality spending – the Australian Retailer Association CEO Paul Zahra cautioned an incoming slowdown in sales, due in part to the “lag effect.”He said that we were now witnessing the impact of months of continued interest rate rises and price rises on consumer spending, with household goods most affected.“It continues to be a truly challenging period – with retailers having to contend with continued rising costs, labour shortages and supply chain issues,” Zahra said.