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Trendspotting: The Boomer Consumer


How to profit from the big spenders of the boomer generation.

The recent special report by newsman Tom Brokaw on the baby-boom generation led many people, including those at the magazine AdAge, on a long strange trip through the past. Since Brokaw's Boomer$ was mostly about money, and AdAge is mostly about advertising, the magazine's focus was on the signature brands of the boomers' youth, like Levi's, Pepsi (PEP) and Frye Boots. Readers on the Web chimed in with better choices, like Marlboros (MO), Slurpies, Dippity-doo, and Yoo-Hoo (DPS).

All of those brands are still around, and some are even thriving. But nostalgia gets us only so far. When it comes to profiting from the boomers, investors should think about the brands that have been created by and for baby boomers, and some other brands that will gain impetus from them.

The question is important to investors because the boomers now control more than half of the nation's discretionary spending and they're sitting on around 70% of its wealth. Neither might be worth what it was a couple of years ago, but unless the world as we know it really does end with a bang, their value will return.

Funny thing is, the kind of advertising and marketing campaigns that overtly address boomers are comical or nightmarish, or both, in the eyes of their target audience (of which I am one).

To judge by the advertising, boomers spend most of their time popping Advil (PFE) and/or Cialis (LLY) and leering at each other. Occasionally, they're seen doting on their grandchildren or trying to teach their daughters how to cook. Otherwise, they have no existence.

In real life, baby boomers don't just hope to live "full and productive lives," as the condescending marketing types would say. By sheer numbers, their wants and needs will dominate for as long as they live, and since they will demand plastic replacement parts as needed, you can expect that to be an astonishingly long time.

Of course, plastic replacement parts are going to be a growth story all by themselves. But for now, let's consider the boomer brands that can be expected to thrive, and a few others that can be expected to grow with them.

By The Boomers

Call it the Ben & Jerry's syndrome. Having been born into the blandest of white bread worlds, the boomers developed an abiding love of quality, particularly in food. Brands like Whole Foods (WFMI) and Trader Joe's that cater to the boomer taste for healthy ingredients and real spices can be expected to do well.

Oddly, fast-food purveyors, with the possible exception of Panera Bread (PNRA), seem to be stuck in the white-bread past. But it will be interesting to see what happens to Domino's (DPZ) after its recent astounding repudiation of cardboard and ketchup as pizza ingredients.

Along the way, a lot of good ideas have been co-opted by the big guys, and all these years later few are complaining about it. After all, it's a lot easier to find Burt's Bees products now that it's owned by Clorox (CLX).

For The Boomers

As the economy recovers, it seems reasonable to suppose that the first and biggest spenders will be the boomers who, as noted, are hoarding most of the cash and will start loosening up and spending it.

Here are a few guesses about what they'll spend it on:

The luxury travel market is dominated by boomers. Cruise lines like Carnival (CCL), which owns upscale names like Cunard, Holland America, and Princess Cruises, have already noted a slight upswing in bookings, and are adjusting their prices upwards accordingly. Luxury hotels like the Ritz, owned by Marriott (MAR), may not perk up as fast because their bread and butter is business travel, not leisure.

The financial products market is primarily driven by boomer money. Trading volume has been way down as individual investors young and old averted their eyes from the financial crisis. As the recovery progresses, online brokerages like Etrade (ETFC), TD Ameritrade (AMTD), and Charles Schwab (SCHW) could benefit.

Even real estate will perk up eventually, and when it does it is likely to be baby boomers who are on the move. And they'll be looking for a style of house that really doesn't exist yet.

Pulte Homes (PHM) is among those trying to design and construct homes that meet their needs, with what they euphemistically call "55-Plus communities."

Maybe they and other companies in the "55-Plus" racket haven't got their target market figured out. It just doesn't seem reasonable to expect that the baby boom generation will pack up and move into a nice quiet closed community.
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