Technology has changed the consumer landscape in so many ways—particularly for retailers and media companies. But one aspect of consumer nature has not changed: our desire for experiences and sharing them. In fact, consumer spending has undergone a striking shift over the past several decades, as people appear more willing to open their wallets for experiences than tangible discretionary goods, including clothing and footwear.
Spending on durable goods, such as household equipment, home furnishings, automobiles, and auto parts, has declined as a percentage of total personal consumption expenditures (PCE). Instead, we've seen a marked increase in purchases of accommodations, recreation, and other experience-related products and services (see chart). This trend is likely to continue through 2018 and beyond, and companies that can deliver unique travel and experiences to consumers stand to benefit most.
Among other specific indicators, the percentage of households planning vacations has grown sharply in the past year, while cruise lines, recreational vehicles, and other categories related to recreation and leisure have recently notched high consumer-sentiment scores.
Social media as a powerful driver of spending habits
The prevalence of social media—especially among millennials—is a major driver of this trend toward experiences. Social media users are just one click away from seeing pictures and videos of their family and friends hiking Machu Picchu, attending a music festival, or participating in a road race. The increased time consumers spend on social media and their inclination to share photos instantly and frequently are creating trip envy, and are fueling consumers' desire to share similar experiences and tell the world about them too. As such, I believe social media firms should provide investment opportunities over the next year, as consumers continue to search for and share travel, sports, and leisure.
Overall, my view is that companies that can bring consumers something special relating to travel (hotels and time-shares, for example) and experiences (such as skiing and gambling) are best positioned to benefit from this trend in 2018 and beyond. I'm also positive on cruise lines, which I believe are another strong play on the expanding desire to travel. In addition, similar types of companies in select countries around the globe—particularly China—stand to benefit from an increase in outbound travel. Increasing margins, as well as return of cash to shareholders and valuation, should remain attractive components for many of these stocks over the next year.
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