Shopping for investment opportunity in consumer stocks

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The busy retail season is in full swing, but what can investors make of the longer-term outlook for consumer stocks? Sophie Steel, Co-Head of the Consumer Industry Group within BlackRock Fundamental Equities, looks beyond the seasonalities to three factors that are reshaping the opportunities across consumer sectors. Watch the BlackRock Bottom Line video, and read more below.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor may not get back the amount originally invested.

‘Tis the season … for holiday cheer, gifting and, of course, spending. Estimates for 2021 suggest a spending surge: Households have generally built up savings during the pandemic and pent-up demand for products and services is set to be unleashed with greater-than-usual seasonal gusto.

Globally, consumers have saved nearly US$6 trillion since the pandemic began1. And higher wages, resulting from global labour shortages, mean that consumers may have greater spending power even before they tap into their savings.

Quotation start

Change drives investment opportunity, and nowhere is change as dynamic as in the world of the consumer. Yet we are just at the start of a major revolution.

― Sophie Steel

Quotation end

Yet even bigger changes are afoot in the character of the consumer and the trends likely to prevail in the years to come. We are at a turning point in the way consumers around the world are spending their time and money.

There are three transformative trends reshaping consumerism across the globe in our view:

1. Consumption change

We see a revolution unfolding in how and what we buy, with digital and social channels becoming a primary mode of discovering, interacting with and purchasing products.

Only a few years ago, the thought of trying on several different looks from the comfort of your own home through an augmented reality app and then paying for one of these looks through a digital wallet would have been totally alien.

This is now becoming normalized. eCommerce is at an inflection point: Over the next four years, it will grow more than three times faster than physical retail, data from Activate Consulting suggests. This is creating new opportunities and transforming the way brands are marketing and selling their products.

2. Entertainment evolution

Younger generations are prioritizing experiences (both live and virtual) over possessions. The urge to splurge on live events has been particularly pronounced recently after months of lockdown. We are seeing live music events selling out faster than ever before. The average ticket prices at a leading live event and ticketing company are up double digits versus 2019. Fans have been spending at record levels, with onsite spending per fan up over 20% compared to 2019.

Online entertainment is soaring as well. Advancements in high-speed networks and the rise of the internet allow unfettered access to digital content whenever and wherever. And consumers are eating it up: People in the developed world spend more time interacting with their friends on social media and gaming platforms than in real life (IRL)2.

We believe these trends are here to stay and create investment opportunities as companies, both in the virtual and physical worlds, seek to “out-entertain us.”

3. Personal well-being

An emphasis on self was accelerated by the pandemic, as individuals were able to focus greater attention on their own health and wellness. The Global Wellness Economy is expected to increase nearly 50% from 2018-2024, as shown in the chart below.

All is well

Size of the Global Wellness Economy, 2015-2024E

Global Health & Wellness Institute

Source: Global Health & Wellness Institute, Credit Suisse, March 2021.

The manifestations of this are many, but one particularly interesting area: pet personalization. Pet ownership increased during the pandemic, and individuals treat (and spend on) their pets much like they do humans. Over 70% of pet owners purchase gifts or treats for their pets during the winter holiday season3. Growth in pet ownership and spending sets the stage for a new swathe of companies to profit.

Room to run

We see all three of these dynamics driving major structural shifts in the investment opportunity set among consumer-oriented stocks. And importantly, these trends are independent of the economic cycle. For that reason, they should only gain in importance over the next several years. Who will be left behind? Companies and industries that have been slow to invest in digitalization.

Watch the BlackRock Bottom Line to learn more about this emerging opportunity.

1Source: Moody’s Analytics, April 2021

2 Based on data from the U.S. Bureau of Labor Statistics (July 2021) and Global Web Index (January 2019).

3Source: Pet Population and Ownership Trends in the U.S: Dogs, Cats, and Other Pets, 3rd Edition, 2019.

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