Posted At : April 1, 2009 8:56 AM
The financial crisis and recession have had a way accelerating some demographic trends while actually slowing down others. Consumption of wine and spirits remains strong in late middle age, in terms of price and quality if not in terms of total volume. The young man who enjoys a can of Budweiser and a cigarette with the boys eventually matures into the middle-aged gentleman who prefers a nice single-malt scotch and cigar with his golfing buddies or a glass of red wine with his wife. This is an overly simplified stereotype, of course, but demographic buying patterns do tend to confirm it. Interestingly, we find in the Financial Times that the financial crisis has, at least temporarily, crimped demand for wine:
“UK Loses Thirst for Bordeaux Wines” “British merchants are selling fine wine back to counterparts in Bordeaux and exporting it to Asia as domestic demand for the most expensive wine slumps”
Across the board, prices are falling for high-end wines. Some of this, no doubt, is due to the fact that wine prices had become unreasonably high in previous years due to interest from “collectors” and “investors” such as niche hedge funds that specialize in vintage wines. The bear market and financial crisis have purged much of this nonsense, and the result has been a depression in wine prices, particularly at the high end. Regardless of what happens to wine as an asset class, demand should remain strong for wine that is actually drunk, in home and in restaurants. Recessions hurt luxuries, even affordable ones like a medium-priced bottle of wine. But demographic trends do suggest that the sector will recover strongly in the years to come.
Meanwhile, we are not nearly as enthusiastic about Harley Davidson’s prospects. As the New York Times writes, “Harley, You’re Not Getting Any Younger”
After riding high for two decades, the company that makes the hulky bikes that devoted riders affectionately call Hogs is sputtering. Harley’s core customers are graying baby boomers, whose savings, in many cases, have gone up in smoke in the market downturn. Few are in the mood to shell out up to $20,000 or more for something that is basically a big toy, and the company, in turn, has not captured much of the younger market.
Few consumer products display as pronounced a demographic pattern as “hogs.” The buyer is generally a white male in his late 40s. This was a phenomenal market to sell to over the past 20 years, as it continually got bigger year after year. But now, as the Times continues, “Its core customers have grayed, and they are buying new bikes less often. The average age of a Harley rider is 49, up from 42 five years ago. But company executives don’t seem outwardly worried by the lackluster growth among those 35 and younger.”
And why isn’t Harley worried? Because “the baby-boom generation has 15 more years of riding life” left in them. They may or may not have 15 years of riding left, but they almost certainly do not have 15 years of buying left in them. We believe Harley’s management is playing the part of the proverbial ostrich with its head buried in the sand. Harley will likely fall on times as hard as those the company faced during its flirtation with bankruptcy in the 1980s—before the Boomer buying spree (and the Federal Government) bailed them out.
Meanwhile, the Financial Times reports that, despite the downturn, lingerie sales remain strong with “with sales of more risqué products holding up well.” While overall retail sales are expected to be down 4% in 2009, lingerie sales are expected to decline only mildly: “Lingerie Wears Well in Recession”. According to Garry Hogarth, chief executive of Agent Provocateur, “as couples stayed at home, rather than going out, to save money, more women were tending to invest in adventurous apparel to add spice to their relationships.” The FT writes that lingerie retailer Ann Summers “also attributed its recent growth to people spending more time at home. In a trading statement last week, it said it had broken all of its sales records around Valentine’s Day.”
While we do not doubt that the recession has created incentives for more inexpensive forms of recreation, we would argue that demographics have a significant role to play as well. The Echo Boomers, the enormous generation that encompasses the children of the Baby Boomers, are rapidly entering their peak years for marriage and family formation. Whether or not the Echo Boomers follow the pattern of their parents (courtship, marriage, children, divorce, new courtship, second marriage, possibly second divorce), the fact remains that a large portion of the population will be at the prime age and stage of life to keep the likes of Agent Provocateur, Ann Summers, Victoria’s Secret, and other lingerie retailers in business.