KKR released a new KKR Viewpoints publication authored by Paula Campbell Roberts . In The New Consumer , Roberts explores the recent emergence of the “Asset Light Consumer” – with respect to the consumer balance sheet and consumer purchases – and its impact on the broader investment landscape.
Paula concludes….The rentership and sharing economy proliferated post the financial crisis in the absence of traditionally secure jobs or strong income growth opportunities. However, despite the improvement in the employment and income picture, renting and sharing remain prevalent. For one, the absence of savings for many renters limits their ability to afford the down payment on a house or car. Second, structural constraints such as high levels of student debt or mortgage lending standards continue to pose challenges for ownership. Third, the flexibility and convenience offered by sharing economy models remain attractive to consumers. Consumers enjoy the benefits of access without the responsibilities of direct ownership. Consequently, while we expect ownership rates to improve, the sharing and rentership models that have penetrated many sectors including housing, autos and apparel, are likely to proliferate.
That said, the displacement of traditional secure jobs and the creation of more part-time work first catalyzed by the Financial Crisis, and later sustained and supported by the sharing economy, poses challenges to the business model. The advent of technology platforms that could efficiently match asset owners and service providers to users has made gig work viable. As more workers rely on multiple gigs for their long-term employment needs, the models of work and the relationship between labor, government and companies will need to continue to evolve. In the short term, gig economy workers and asset light consumers need to save more. In the long term, governments and companies may need to provide benefits and security that holding assets had traditionally offered.
Further, the decline in homeownership will likely translate into a loss of a wealth creation opportunity for a large segment of the population. Historically, homeownership has been an important determinant of the long-run well-being of families and individuals, enabling investments in education and businesses, providing economic security in times of lost jobs or poor health, and a means of wealth transfer to children.20
For investors, we suggest a focus on four primary areas:
- Lower rates of homeownership will likely lead to continued delays in asset purchases in the short term, followed by a slower rate of consumption growth in the medium to long term. As spending continues to outpace income growth, this renting and sharing consumer will continue to lack the savings to make asset purchases. Further, as Millennials enter their forties and healthcare burdens rise, savings will likely increase at the expense of consumption. In conjunction with the impact of demographics, this longer-term shift in consumption may lead to even slower growth in spending on goods, as well as some softness in discretionary services spending in favor of increased spending on healthcare as well as contributions to savings.
- Sharing and rentership models are likely here to stay, and will continue to disrupt traditional business models given the benefits they provide to consumers as well as workers.
- Be cautious about investing in sharing economy models that do not directly address the evolving needs of workers. We are in the middle of the Fourth Industrial Revolution, the digital revolution, which has resulted in a redefinition of work. The transition will likely continue to disrupt industries and investors should take heed.
- As the large consumer sector is diverse, be sure to disaggregate macro trends to understand how different cohorts behave. If business success relies upon demand fueled by renters, the business model may face more challenges than anticipated in a downturn.
- Finally, the impact of the new asset light consumer and the transition to a services economy may have contributed to slower growth in capex. New sharing economy business models for example rely less on traditional equipment. Instead, software and servers fuel the digital services economy. Increased sharing economy penetration creates less demand for the same quantity of assets e.g., autos, resulting in slowing growth in capex.