Back to the future – a new way of seeing forward

The concluding part of a three-part paper previously published by Professor Sherry Jarrell, Part One is here and Part Two is here.

What kinds of business establishments will thrive in the U.S. city of the future?  To answer this question, we examined the count of the number of establishments per business category listed on yellowpagecity.com, adjusted proportionately to represent a population of 500,000, and found the following results.

Death services. Although the strain on the healthcare system has received much attention in relation to ageing in the United States, the next logical step—death—is rarely mentioned, although it certainly represents many business and professional opportunities.  Our data suggest that the number of funeral facilities and cremations per 500,000 residents might double or even triple by 2025. The same applies to the number of cemeteries and companies listing monuments.

Healthcare. Along with roughly 30% more doctors, our data suggest that a range of medical services and products will be in greater demand by 2025. Nearly all of them relate to age. Consistent with the expectation that mental and self-care disabilities increase with age, listings also jump considerably for alcohol information and treatment, and counseling services. This trend doesn’t occur, however, for mental health services.

Real estate and living arrangements. Real estate listings significantly increase across the six MSAs, along with a substantial growth in listed land surveyors. The number of listings for nursing and convalescent homes moves from an average of 30 for the current MSAs to 50 for the 2020 and 2025 cities. There’s an even larger average rise in the number of retirement communities and homes.

Perhaps the most surprising pattern, at least initially, is the dramatic increase in the number of listings for mobile home dealers and mobile home parks and communities. Insurance studies have shown, however, that the percent of manufactured (mobile) home owners who are age 65 and older has risen from 26% in 1990 to 30% in 2002. Similar percentages are cited for owners who are retired. In addition, over the same period, the amount of owners age 80 and older has changed from 3% to 7%. Therefore, the future might be replete with mobile homes. The data might reflect the strategy of retirees selling larger homes to extract the equity, which is used to help fund retirement and buy a less-expensive manufactured home.

Activities. The data show a marked increase in the number of associations, clubs, churches, and fraternal organizations, which supports the description of mature adults as “joiners.” Bingo games are more popular in the 2020 and 2025 cities. Perhaps most noticeably, more golf is played in the 2020 and 2025 MSAs, requiring many more golf courses and golf-related products and services—not just in Florida, but also in Youngstown, Utica, and Scranton. Residents in the 2020 and 2025 cities also spend more time at the library, at recreation centers and parks, and reading newspapers.

Finance. Services that will be in higher demand as retirees seek assistance in managing their retirement assets include credit and debt counseling services, insurance, loans, mutual funds, and stock and bond brokers.

Products. The number of listings for new and used automobile dealers increases between the 2005 and 2025 cities, as do listings for new and used furniture dealers, health and diet foods, hardware, lawn and garden equipment and supplies, service stations, TV and radio equipment sales and service, and vitamins. But the data also reveal many other rising trends that are likely age-related, such as for antique dealers, arts and crafts, ceramic equipment and supplies, embroidery, gift shops, giftwares, jewelers, and security-related products. The substantial increase in florists is probably related to the number of hospitals, funeral facilities, and crematories in the cities.

Services. The Yellow Pages listings indicate many more business, employment, and investment opportunities in the future. Several categories relate to home improvement, such as contractors for remodeling, landscaping, and swimming pools. Home maintenance also is in greater demand in cities with older populations. Similarly, listings related to servicing and repairing automobiles, furniture, and jewelry rise across the three pairs of cities—along with beauty salons and massage. Pets apparently deserve no less, as pet washing and grooming services are in greater demand in cities with older populations.

Research Implications

This innovative methodology for studying various aspects of the future reveals that many of the detailed trends across the three pairs of cities have significant implications with respect to new product development and marketing. For example, marketers need to begin partnering with development and land use officials to anticipate future growth in demand for golfing facilities, churches, parks, libraries, cemeteries, and mobile home parks. And medical services providers must be prepared to meet the demands for home health services and many other healthcare preferences of older adults in an increasingly competitive environment.

Although it’s true that many factors other than age will shape future spending patterns, such as changing tastes among mature buyers, new technology, and various economic factors, many of these trends are almost entirely age-related. Therefore, it’s unlikely the future will look that different from Lakeland today, where the share of the population age 65 and older is identical to that projected for the nation in 2025.

The United States will not be a nation of Floridas in 2025; it will be a nation of Lakelands.

By Sherry Jarrell

Back to the future – a new way of seeing forward

Part Two of a three-part paper previously published by Professor Sherry Jarrell, Part One is here.

In this post, we examine the current income and spending patterns from metropolitan statistical areas (MSAs) with age demographics similar to those projected for the U.S. economy in 2020 and 2025.  Two MSAs are selected for each year to verify that differences in buying patterns across cities are because of differing age distributions, not peculiarities in the cities.

We began with U.S. Bureau of Census data on the percent of total U.S. population expected within five age groups through 2025. The share of U.S. population attributed to people age 65 and older is expected to increase from 12.4% today to 16.3% in 2020 and 18.2% in 2025. By 2025, nearly one out of every four drivers will be age 65 or older, compared with 15.6% today.

Income and Spending Patterns

We find that, although many mature adults are highly mobile, most stay put; this results in the Northeast and Midwest remaining key mature markets.  Three of our four 2020 and 2025 MSAs are in Ohio, New York, and Pennsylvania. We also find that older consumers:

• spend more of their income: The spending per income ratio rises from .67 today, to .76 for the 2020 MSAs and .77 for the 2025 MSAs.

• continue to depend on their cars and prefer them to public transportation.

• spend increasingly larger shares of their income on healthcare.

• make TV a key element of their lifestyles.

• remain in their homes and avoid nursing homes.

• are politically conservative.

• are civically active and wield growing influence.

• are joiners.

• spend heavily on housekeeping supplies, household furnishings and equipment, new vehicles, entertainment, computers, healthcare products, vitamins, healthier foods, and reading materials.

• spend less on apparel, cosmetics, and fast food.

We find that the percent of retail spending on necessities such as products at food and beverage stores and the subcategory of grocery stores is generally higher in all six of our MSAs, compared with the nation. The same is true for the general merchandise store category, which includes discount stores.  We also observe generally lower spending shares relative to the nation in the more discretionary categories of clothing and accessories stores, furniture and home furnishings stores, electronics and appliance stores, building materials stores, and garden equipment stores.

The more important observations relate to spending patterns across the three pairs of MSAs. Looking at food and beverage stores, spending as a share of total retail sales declines across the three pairs of MSAs with increasingly older populations. Beginning with an average of 17.2% in the 2005 MSAs, spending at food and beverage stores drops to 14.1% in the 2025 MSAs.

Similarly, the subcategory of grocery stores falls from 15.1% today to 12.2% in the 2025 MSAs. Note that the approximately 3 percentage point declines in these categories are in spending relative to total retail sales, and that within the categories, the decreases in spending are nearly 20%. For example, for every $1,000 in retail spending in the 2005 cities, approximately $151 is spent at grocery stores. That compares with $122 in the 2025 cities. Thus, although spending shares at food and beverage stores are higher than the national average in all six MSAs, the spending shares fall across the three pairs of MSAs as their populations become increasingly older.

The trend also is downward over time for food service and drinking places, from an average of 9.7% in the 2005 MSAs to 7.5% in the 2025 MSAs—with the trend again representing a roughly 20% absolute dollar spending decline per capita within the category. These results support the expectation that older consumers eat healthier and in less quantities (especially in the case of fast food), and also spend fewer dollars at drinking places.

Per capita spending at clothing and accessories stores decreases from an average of 4% of retail sales in the two 2005 cities to 3.2% in the 2025 cities. As before, although the 1% drop appears small, it represents an approximately 20% reduction in per capita spending.

What types of stores benefit from older populations?

Our results indicate increased spending on furniture, automobiles, and homes. Looking at the per capita shares of total retail spending for furniture, home furnishings, and electronics and appliances, spending shares rise from an average of 2% in the 2005 MSAs to 3.9% in the 2020 MSAs and 4.2% in the 2025 MSAs. This suggests a doubling of per capita spending at furniture and related stores. There are similar patterns for the subcategories of furniture and home furnishings stores, and electronics and appliance stores. Spending also generally rises at building materials and garden equipment stores. Upward trends across the six cities additionally are shown for motor vehicles and parts, and healthcare and personal care.

In the third and final installment of this research, we will discuss the specific types of business establishments that will thrive in the U.S. city of the future.

By Sherry Jarrell

Back to the future – a new way of seeing forward

Part One of a three-part paper previously published by Professor Sherry Jarrell

Market research on the ageing of the U.S. baby boomer generation has focused on the spending habits of these older consumers. A new approach enables marketing researchers to observe the future now: Examine income and spending patterns from metropolitan statistical areas (MSAs) with age demographics similar to those projected for the U.S. economy in 2020 and 2025. With knowledge of these trends, they can begin preparing to meet the demands for particular products and services.

“Find a comfortable couch, lie back, and close your eyes. … Let your mind wander toward the future. Move, slowly, to the year 2030. Now open your eyes. What do you see? You see a country whose collective population is older than that in Florida today. You see a country where walkers outnumber strollers.” Laurence J. Kotlikoff and Scott Burns in The Coming Generational Storm (The MIT Press, 2004).

There has been much speculation regarding the effects of the aging population on the U.S. economy. By the year 2025, more than 18% of the U.S. population is projected to be age 65 or older, greater than the percentage in Florida today. This has led some to describe the future of the United States as “a nation of Floridas.” Furthermore, the aging of the United States is not expected to pass with the demographic bulge produced by baby boomers (those born between 1946 and 1964). The U.S. population also is aging because of increased life expectancy and decreased numbers of offspring. As a result, current research projects that the U.S. age profile soon will transform from the current pyramid shape, with older groups at the top, to more of a barrel shape, with roughly 40% of the population divided fairly evenly between the youngest (under age 15) and oldest (over age 65) groups. This new profile will persist for decades.

Although much has been said about aging baby boomers leading to potential crises in Social Security and Medicare, we are more interested in the economic prospects of their retirement as they relate to consumer spending: in particular, whether they have saved enough to maintain their standards of living in retirement. In this regard, the Congressional Budget Office (CBO) reviewed studies from the past decade on the retirement prospects of aging Americans, and found evidence that varied with the standard used to define “enough.” Some studies defined it as the level that maintained the retiree’s working-age standard of living, whereas others defined it as levels that made the retiree as well off as his or her parents at the same age.

The picture that emerges from the CBO study is that baby boomers, relative to their parents at the same age, have higher real incomes, are preparing for retirement at the same pace, and have accumulated more private wealth. Furthermore, the savings behavior of baby boomers and other future retirees is dependent on their views of the health and stability of government benefit programs. If they believe that they will receive all of the government benefits they have earned, then they will tend to work and save less. If they believe that these programs are in trouble, then they might increase savings and postpone retirement.

What impact will changing age demographics have on future spending patterns? We obtain a more complete picture of future spending by observing aggregate spending patterns in local economies that resemble the future now: those cities where “walkers outnumber strollers” today. This novel research approach is based on actual observed data, rather than on speculation and long-term statistical forecasts, both of which are notorious for inaccuracy.

In the next post, we discuss our sometimes surprising findings on the spending patterns in the U.S. city of the future.

By Sherry Jarrell