As inflation and the rising cost of living pushes young adults to move back in with their parents, many are turning to Gucci, Chanel, and Louis Vuitton to lift their spirits.
The record number of young adults living at home with their parents is driving the growth for luxury goods in the U.S. and the West, Morgan Stanley analysts say in their latest report.
U.S. Census data shows that nearly half of all young adults from ages 18 to 29 still live at home, the highest level recorded since the end of the Great Depression in 1940. Morgan Stanley attributes this growth to the rising cost of rental prices, the greater enrollment in higher education, and the delaying of marriage.
According to the analysis led by Edouard Aubin, this structural trend has been “overlooked” in the context of rising luxury spending over the past decade. As older Gen Zs and younger millennials have their rent and food paid for by their parents, their discretionary spending increases, allowing them to buy up more designer handbags, watches, and jewelry.
“When young adults free up their budget for daily necessities (e.g. rent and grocery), they simply have more disposable income to be allocated to discretionary spending,” the Morgan Stanley report said, adding, “We see it as fundamentally positive for the industry.”
Gen Z changing the luxury landscape
The world’s emergence from the COVID pandemic has led to a bumper year for luxury spending. Global sales of luxury goods grew around 22% in 2022, from $305 billion in 2021 to $366 billion this year, according to estimates from a Bain study commissioned by Italy’s Altagamma association of high-end producers.
Much of this rise can be attributed to a new generation of younger buyers entering the market.
“Consumption is back at pre-crisis levels, but it is also a rebirth, since there is a new consumer base that is younger, and some pockets of consumers that have been unlocked during COVID are here to stay and growing, like subcultures and ethnic groups in the U.S.,” said Bain partner Claudia D’Arpizio, coauthor of the study.
Gen Z are expected to account for 40% of the global personal luxury goods market by 2035, according to the trade journal Business of Fashion, and luxury conglomerates are focusing their efforts on marketing to this demographic. Young adults around the world have been “a very strong factor of luxury growth over the past decade,” said Grégory Boutté, chief client and digital officer at Kering.
The headwinds of the East and the West
In North America and Europe, luxury market fears are centered on the fact that young people (more so the ones who don’t live at home) are seeing their discretionary income shrink from inflation and the rising cost of living. But China has a different problem: youth unemployment.
With youth unemployment in China now at a record 20% and economic growth falling below Beijing’s targets, luxury executives are especially worried as high-end consumers in China are a decade younger than the global average of 38.
While China has dominated the Western luxury market for the past 10 years, continued lockdowns from the government’s zero-COVID strategy have almost halved China’s luxury goods market share in the past year due to closed stores and lagging economic growth, according to Bloomberg analytics. The U.S. overtook China as the top buyer of luxury Swiss watches in 2022, and the U.S. market also accounted for higher sales for luxury conglomerates Richemont and LVMH.
“In the U.S., inflation is a huge issue, the major focus of a lot of luxury companies…In China, it’s the youth unemployment rate that’s alarming right now,” Kenneth Chow, principal at consultancy Oliver Wyman, told Reuters.
“This might be the first time that a lot of young adults [in China] are facing [such an] economic impact, so it will be a testing ground on how these consumers are going to spend on luxury items going forward,” Chow said.
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FAQs
Record numbers of young adults living at home with their parents are helping drive the boom for luxury goods in the US and UK, according to Morgan Stanley. Recent US Census data shows that nearly half of all young adults ages 18 to 29 are living with their parents — the highest level since 1940.
How many Gen Z still live with their parents? ›
However, Gen Zers are also less likely to own a home, be married or have children. Additionally, about one-third still live with their parents. But both parents and their adult children are less inclined to mind cohabiting, Pew also found, as living in multigenerational households becomes more mainstream.
Why are millennials living with their parents? ›
What's happening: Younger generations may be staying home to save on expenses like rent or a future down payment, says Adina Dragos, research analyst at RentCafe, an apartment search website. More young adults could also be choosing to care for family members, Dragos tells Axios.
Why are people moving back in with their parents? ›
Bloomberg found that there were three top reasons why young adults were choosing to live at home with their parents: To save money. To take care of older family members. Because they can't afford to live outside of the home anymore.
Which generation spends the most on luxury goods? ›
Millennials (Born between 1981 and 1996)
Although their purchasing power may be lower compared to older groups, Millennials tend to allocate a larger proportion of their income to luxury products and experiences.
At what age is Gen Z moving out? ›
Gen Z is young, with many still under age 18. For those 18-24, many are moving for college, to start their career or to explore life in a new place.
Why are so many Gen Z living at home? ›
Blame high housing costs. Nearly one-third, or 31%, of Gen Z are living with their parents because they can't afford to buy or rent their own space, according to a recent report. The year 2023 was the least affordable homebuying year in more than a decade.
Why does Gen Z not want to have kids? ›
New research has confirmed that increasingly fewer Millennials and Gen Zers are having children, and there is a “scary” reason why. More than half of 18- to 34-year-olds are choosing not to have children due to financial challenges, according to newly released data from Australian research company the Red Bridge.
How does Gen Z feel about their parents? ›
Though the challenges facing Gen Z are unique, issues with their parents often boil down to age-old “difficulties in communication, boundary setting and honesty, often rooted in fear, whether it be fear of judgment, fear of failure, fear of harm or even fear of change,” Efron said.
Why are Millennials so different from Gen Z? ›
Millennials were pioneers in the digital age. They witnessed the introduction and rise of social media, instant messaging, smartphones, search engines, and the mobile revolution. Generation Z did not witness these innovations, but rather, they were born into it.
Map 1 suggests that in most northern and western countries, young people left home on average in their early twenties, while in southern and eastern states the average age when leaving home was in the late twenties or early thirties.
Why do some adults still live with their parents? ›
Young adults are staying in school longer, coping with rising student debt, marrying later and waiting longer to buy a first home. Many move out of the parental home only to return after losing a job or a roommate. Researchers call them boomerang kids.
Where is Gen Z moving to? ›
Washington, D.C., Is the New NYC For Gen Z
More Gen Zers moved to New York City in 2022 compared to 2021, but it's not a top destination like it was for millennials over a decade ago. Washington D.C., Chicago, and Boston were the top three cities with the biggest net migration of Gen Zers in 2022.
What is the most frugal generation? ›
Gen Z is thrifty, and they love a good sale.
What does luxury mean to millennials? ›
Millennials are digital natives at heart. Their idea of status is not shaped by luxurious and exclusive possessions, but by a commitment to freedom of expression, new experiences and technology that matches their busy lifestyles. Luxury alone just will not cut it.
Which generation will be the wealthiest? ›
Millennials are set to inherit as much as $90 trillion in assets before 2044, a new report shows. Many millennials are currently grasping in frustration at long-held American Dreams like homeownership, a steady job and an affordable cost of living.
What percentage of Gen Z are parents? ›
Even when you add their partners, Gen Z parents will represent less than 10% of the total population. Policy makers, corporations, and public services always adjust to meet the needs and expectations of new generations of parents.
Is Gen Z close to their parents? ›
Gen Z Is Closer to Parents Than Ever: Make Sure Your Closeness Isn't a Solution for Fear - Tribeca Therapy.
What percent of Gen Z will have children? ›
July 29, 2023 - 8:00am. A new survey reveals that only 55% of Gen Z and millennials plan to have children. One in four of those surveyed, aged between 18 and 34, has ruled out parenthood entirely, with the most common reason cited being “wanting time for themselves”. Why this increasing need for more “me time”?
How long will the average Gen Z live? ›
It is a known fact that lifespan increases with each generation. For baby boomers, the average life expectancy is 70 years, for Gen X its 85, and newer generations like Gen Z and Alpha will likely exceed the 100-year mark.
