The Prediction Predicament
Updated: Jul 11, 2021
Why analysts’ consumer behavior projections for Gen Z may be premature.
Since Gen Z was first given its now-iconic moniker, analysts have tried feverishly to predict its interests, tastes, and behaviors, attempting to decipher how its differences from Gens X and Y will alter consumerism as we know it, from the food industry, to the music industry, and everything in between. For analysts, predicting the consumer habits of the next generation is a race to the presses. Nowhere has this been truer than in the fashion industry. However, it seems that many analysts have been haphazard in their projections, especially considering that most members of Gen Z are only in their teens.
Ultimately, I believe that analysts have been shortsighted in their predictions of Gen Z consumerism, treating incomplete or skewed data, fleeting trends, and the current social climate as concrete evidence of the digital generation’s future consumer behavior.
First, analysts wrongfully view “wokeism” as a permanent characteristic of Gen Z. In 2019, McKinsey reported that nine in ten Gen Z consumers believe that companies have a “responsibility to address environmental and social issues.” Since then, many fashion companies have completely overhauled their public image, promoting high-profile sociopolitical movements, such as #BLM, #MeToo, and even going so far as to temporarily change their logos in a bid to highlight their social consciousness. While analysts argue that brands must be “woke” in order to attract Gen Z consumers, "wokeism" is actually not a key factor in most members' decisionmaking. Additionally, I believe that today’s “woke” agenda is merely a trend that Gen Z will abandon within a few years. Though social justice issues will remain important and brands will continue to promote social awareness, Gen Z consumers will eventually move past their desire for companies to match their interest in social issues.
Second, I argue that analysts have been misguided in their love of “sustainable,” or “shared” luxury. In recent months, despite the downturn caused by the COVID-19 pandemic, secondhand luxury sites like The RealReal (TRR) and Vestiaire Collective have become wildly popular among investors. However, blinded by TRR’s GMV, which has increased 27% Y/Y to $327 million, analysts not only fail to see that TRR still operates at a considerable profit loss of around $175 million, but that its number of active buyers hasn't grown significantly year-over-year despite its mounting popularity among investors. The same goes for membership-based rental companies like Vivrelle, Rent the Runway, and Cocoon, all of which have raised significant funding from groups looking to gain share in the sought-after space.
Hailed as the “future of sustainable luxury,” analysts believe that secondhand luxury will find a new life in Gen Z because of its sustainability appeal. However, sustainability isn’t the main thing attracting young consumers. Given that most members of Gen Z are only in their teens, the rise of secondhand luxury is also the result of younger, entry-level consumers who want designer labels, but don’t yet have the budget for brand new luxury items or department store prices. In fact, in its 1Q2021 Investor Presentation, TRR reported that only 40% of its buyers and consignors cite environmental impact or extending the lifecycle of luxury as “key motivators” for consigning.
Additionally, the vintage goods market isn’t consistent. While a brand can assign a value to a new item—for example, a handbag—a vintage bag’s value is completely subjective, fluctuating based on current trends. For example, prior to the relaunch of the Dior saddle bag under Maria Grazia Chiuri, the original Dior saddle bag, released in the 1990’s, had very little value, with mini models listed between $150 and $250, and larger, shoulder models listed between $350 and $500 in 2018. Now, those same vintage bags are listed for at least 2x what they once were, their desirability increasing as a result of the re-issued saddle bag’s popularity.
Furthermore, secondhand luxury is a trend in and of itself. Like fashion, the love of vintage goods fades, regardless of its environmental value. Remember the original bag rental company from the 90’s, Bag Borrow or Steal? The same cycle is inevitable with this new wave of secondhand consignment and rental companies.
Finally, analysts tend to make consumer behavior predictions based solely on Chinese consumers. And, while China as a whole is inarguably the fashion industry’s largest consumer demographic, China’s Gen Z is not, making up only 16% of the country’s total consumer power, according to Vogue Business. As such, the behaviors of China’s Gen Z consumers should not be unilaterally applied to Gen Z consumers from other major markets like the United States, Japan, and Canada, nor should companies adhere to them blindly as they adjust their business models going forward.
In closing, investors and analysts alike must remember that fashion is first and foremost a trend-based industry, and an increasingly fast-paced one, thanks in large part to social media. As such, it is important to treat trends as trends, not as definite indications of what’s ahead. Ultimately, in their scramble to predict the future, analysts have failed to look at the whole picture, building models based on trendy buzzwords and teenage spending, neglecting to recognize that, despite their best efforts, Gen Z is far from predictable.