Summary List Placement

The habits and behaviors of millennials are fascinating to the older generations. And their share of total US net worth is expected to quadruple by 2030, according to John Kernan, an equity analyst at investment bank Cowen, who says investors that understand this generation of consumers will be best positioned to capitalize on the great transfer of wealth that will eventually take place. 
Cowen recently conducted its third annual survey into the behaviors of millennials – those born roughly between 1980 and 2000 – and Generation Z – those born between 1996 and 2010 – for insight into these groups’ behaviours. The survey interviewed 1,200 US adults from the ages of 18 to 34, benchmarked against 1,500 US adults from the ages of 35 to 55.
“As these cohorts, who have grown up in the digital age, grow older and experience rising income, along with potential for substantial wealth inheritance estimated at $30 trillion over several decades, consumption patterns of these consumers could lead to profound shifts in the retail and payment industries, rendering them a critical demographic for investor focus across consumer and tech verticals,” Kernan said.
 

According to an Accenture report, the peak of wealth transfer will occur between 2031 and 2045, with around 10% of total wealth of the US changing hands every five years. As millennials and Gen Z see their wealth grow, their decisions around shopping habits, consumption behavior and savings pattens will likely have an impact on the consumer, e-commerce, payments and restaurant industries.
Cowen’s survey identified eight key themes that will have an effect on growth and risk across these sectors and the bank’s team of equity analysts identified 12 stocks that will be well placed to benefit from that broader shift in consumer behaviors.
“Gen Z and Millennial consumers should grow to 70% of the global population by 2028 vs. 60% today, facing different ethnic compositions and wealth distributions than prior generations,” Kernan said.

Many of the stocks listed are growth stocks, aligning with current environment where investors are preferring  growth stocks over value stocks.
“The ‘growth’ vs. ‘value’ continues to skew stock performance in favor of TAM and digital growth narratives in Consumer,” Kernan said.
Eight Key Themes
These are the eight key themes on consumer behavior that came out of the annual survey.
Sustainability & Social Impact
Sustainability and social impact are playing an important role in young consumers’ decisions — 74% of respondents said sustainability or social impact was either “very important” or “somewhat important”.
“Gen Z and millennials view a brand’s social impact and sustainability [initiatives] as more important than older demographics which, on average, registered at 53% within the survey,” Kernan said “Initiatives to promote sustainability will benefit those with scale in the supply chain to offset costs.”
Resale Capabilities
Growth in purchasing on leading resale platforms grew 36% year-over-year, according to the report. Analysts identified that consumers attitudes toward second hand items and secondary markets had turned favorable. The themes underpinning this change were digital communities, data analytics, product scarcity and network effects.
“The network effects of each marketplace are significant with data, and more users/community participating in the market creating more trading, more hype/storytelling around product launches and enabling brands to create customized, limited-edition product at premium prices and high sell-throughs,” Kernan said. “This ultimately can circle back and help to drive primary market sell through for brands depending upon brand heat in the secondary market. The growth of the market generates value-creating opportunities for brands able to participate.”
Path to purchase
Amazon is playing a significant role in the path for young consumers to find, research and buy products.
“AMZN has emerged as the most important resource along a consumer’s journey from initial search, to product research, to completing a purchase for every age cohort under 55,” Kernan said.
Social Commerce

Each year, social media continues to play an even bigger role in society’s habits, Cowen’s analysts see social media becoming a key way for consumers to find products and engage with brands. They expect the trend toward social commerce to lead to “lower growth for consensus models and potentially lower valuation models for vendors with mall based and outlet retail exposure”.
“The affinity for Amazon among these consumers suggests that sustained eCommerce growth at Amazon should be sustainable,” Cowen internet equity analyst, John Blackledge, said. “It also shows that social commerce is a trend that is here to stay and that it can benefit both new and existing brands. While it is still early, Instagram and Pinterest appear well positioned to capitalize on this shift to social commerce and any platform that successfully does so should drive meaningful value creation in our view.”
Brands
Brands continue to dominate, according to the report, particularly those focused on the mix between casual and lifestyle. Companies like Nike, Adidas and Lululemon with strong brand affinity are best positioned to capitalize on this.
“Retailers and brands in the mid-tier mall and department store based fashion may continue to lose share, while value driven retail and innovation/aspiration retailers and brands should continue to win,” Kernan said “This has manifested itself in a barbell strategy towards sector positioning – own Athletic, Off-Price, luxury and broadlines.”
Digital Economics
Brands with an existing strong digital platform will have the ability to earn a meaningful higher gross profit margin because they are now able to recognize full retail price relative wholesale price, Kernan said.
“Many sneaker and apparel brands, along with retailers, with well-established digital platforms have been posting outsized e-commerce gains in the 1H of 2020 through present,” Kernan said.
Suburbanization

According to the survey, 29.7% of respondents in the 18-24 age group owned their own living space, compared to 19.3% in 2019. There was also a decrease in those within the age group living in rented spaces, however, because the survey took place in June, when COVID-19 restrictions were still in place, suburbanization habits may be affected. Cowen is still expecting companies serving suburban areas could benefit from this change in living habits.
“We are seeing a recent distinct trend of an exodus out of urban areas into suburban areas within the U.S., particularly among millennials. It remains to be seen if this recent shift is near-term and tied to the pandemic or a longer-term trend,” Kernan said.
Food Transparency
Similar to sustainability, young consumers, based on the survey, want more transparency over where their food comes from. Companies making strides in this space will be distinctly advantaged.
“62.1% of Consumers aged 18-34 view food transparency as ‘Important’ or ‘Very Important’ in making a restaurant decision, 4.1% above consumers aged 35 +,” Kernan said.
Top 12 Stock Recommendations1. Nike

Ticker: NKE
Millennial Themes: Digital Economics, Brands, Sustainability, Resale Opportunities
Analyst commentary: “The 2020 Millennial and Gen Z survey data indicated that Nike Brand continues to dominate athletic performance apparel and footwear preference among both the 18-24 and 25-34 age groups in both athletic and casual footwear and apparel. With a brand that leads in innovation, in our view, has a vast omni-channel distribution network globally, a highly sophisticated supply chain, and spent $3.6B in demand creation in FY20, it’s not surprising that Nike leads in preference.”
Source: Cowen
2. Lululemon

Ticker: LULU
Millennial Themes: Brands, Digital Economics, Sustainability
Analyst commentary: “Our survey reaffirms digital and social commerce themes, and we continue to see the shift to digital as underlying a structural change in EBIT/FCF growth for the most digitally enabled brands as the unit economics for Nike, lululemon, adidas, VF, Puma, Yeti and others will improve through digitally enabled direct selling and boosting the recovery of 2019’s pre-COVID demand levels.”
Source: Cowen
3. Adidas

Ticker: ADDYY
Millennial Themes: Brands, Sustainability, Digital Economics
Analyst commentary: “The adidas brand’s initiatives to press innovation, improve segmentation and allocation (e.g. Yeezy), while providing both digital and in-store experiences that resonate with consumers, appear to be yielding positive returns as evidenced by rising brand preference scores in our Millennial survey.”
Source: Cowen
4. Amazon

Ticker: AMZN
Millennial Themes: Path to Purchase, Social Commerce
Analyst commentary: “When we look at how this part of consumers’ Path to Purchase has changed over the past year, we can see that Amazon has become and even more integral part of the consumer shopping experience at the expense of multi-line stores. This is likely due to a combination of pandemic related store closures and Amazon’s growth. Overall Amazon rose from 30% of respondents indicating it was the most likely place to begin their product search for a new item of clothing, footwear and accessories in 2019 to 33% in 2020, while multi-line stores fell from 23% to 19% in 2020. This shift was more pronounced within the younger demos”
Source: Cowen
5. Facebook

Ticker: FB
Millennial Themes: Social Commerce
Analyst commentary: “Meanwhile, more than 70% of Instagram users A18-35 follow a brand on the platform and of those users that follow a brand over 50% have made a purchase from one of the brands they follow in the past 3 months. Our data also shows that nearly 50% of Instagram users have interacted with IG’s product tag feature, which in our view highlights Instagram’s growing relevance as an end-to-end social commerce platform. Implications of Instagram’s success are multi-faceted – it enables highly specialized direct to consumer brands to scale at increasingly rapid rates which lowers the barriers to entry and increases risk premiums/cost of capital in traditional retail.”
Source: Cowen
6. RealReal Inc

Ticker: REAL
Millennial Themes: Sustainability
Analyst commentary: “The RealReal is the largest online consignment luxury platform in the U.S. with 582mm active buyers and $1bn+ in GMV, however we also consider the company to be a leader with regards to sustainability initiatives and impact relative to its retail peers. According to our research, younger generations are more conscious of the environment, and they see also pricing as one of the key factors that influence their purchase decisions. REAL’s positioning at the center of these two trends – promoting the circular economy and offering luxury items at up to 40% value to the retail market – bodes well for resale luxury market expansion, and market share gains from non-resale retail models, in our view.”
Source: Cowen
7. Ulta Beauty

Ticker: ULTA
Millennial Themes: Sustainability
Analyst commentary: “Ulta Beauty announced the launch of its Conscious Beauty initiative, which is debuting in Fall 2020. The program champions clean ingredients, cruelty free products, vegan, sustainable packaging, and positive impact. With regards to sustainable packaging, ULTA has pledged that 50% of all packaging sold will be made from recycled or bio-sourced materials or will be recyclable or refillable by 2025.”
Source: Cowen
8. Boston Beer Company Inc

Ticker: SAM
Millennial Themes: Boston Beer Company is not directly linked to any of the key themes in the report. But Cowen analysts outline that innovation and category disruption will drive shifts in consumer behavior for its core vice categories. Boston Beer Company is expected to be one of the companies to capitalize on this.
Analyst commentary: “Our Top Pick SAM is uniquely positioned to benefit from the outsized growth that we are seeing in the hard seltzer category, given their #2 market share position. Indeed, we can see that based on Cowen’s proprietary Consumer Tracker, hard seltzer incidence is highest among the key 25-34 year old cohort (at 42% incidence), followed next by 18- 24 year olds (at 33% incidence). The combination of the strong growth in hard seltzer for SAM, coupled with the opportunity for significant operating leverage on the A&P line, drive our conviction in this Top Pick, where our estimates stand ~33% ahead of consensus. Maintain Outperform.”
Source: Cowen
9. Green Thumb Industries Inc

Ticker: GTBIF
Millennial Themes: Green Thumb Industries Inc is not directly linked to any of the key themes in the report. But similar to Boston Beer Company, Cowen analysts believe GTI will be one  of the companies to capitalize on young consumers changing habits within the core vice categories.
Analyst commentary: “GTI is our favorite name among the U.S. MSOs given their strong EBITDA margin profile, attractive geographic exposure (which will yield benefits from regulatory change at the state-level) and healthy balance sheet. Maintain Outperform.”
Source: Cowen
10. Chipotle Mexican Grill

Ticker: CMG
Millennial Themes: Food transparency
Analyst commentary: “Outperform-rated Chipotle Mexican Grill (CMG), which emphasizes food transparency through food with integrity and “For Real” marketing campaign, and also features a rapidly-growing digital business that represented 61% of sales in 2Q20, where customers can place orders for both pick-up and delivery through a partnership with the Big 4 3rd Party delivery providers and the Chipotle app/website”
Source: Cowen
11. Wingstop Inc

Ticker: WING
Millennial Themes: Food transparency
Analyst commentary: “Our top four stock picks of Chipotle, Wingstop, Starbucks and Domino’s (in that order) not only have leadership positions in their respective categories, but also strong digital ordering penetration, which leads to richer data collection and a ~20% higher check, on average. Digital conversion continues to be a driver of same store sales at all four of our top picks.”
Source: Cowen
12. Paypal Holdings Inc

Ticker: PYPL
Millennial Themes: Analysts also identified in the report that there was a “clear desire” among all ages to leverage digital wallets and payments. Cowen equity analyst, George Mihalos outlines his top pick for capitalizing on the digital wallet trend among Millennials and Gen Z.
Analyst commentary: “Survey results indicate that PayPal (PYPL) is far and away the most popular digital wallet for both online and in-store purchases, with 38% of all consumers selecting it as a payment method used in the last three months. We believe that the overwhelming dominance of PYPL online makes up for its current lackluster in-store offering, which we believe will be greatly enhanced over the coming years through its QR code rollout.”
Source: Cowen

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