With the RBA hiking interest rates yesterday to cool inflation, a natural impact will be felt by the retailers who may suffer from less discretionary fire power from consumers, but not all consumers will be impacted to the same degree. One of the more encouraging signals coming out of recent consumer data is the resilience of the youth cohort. While the broader Australian consumer continues to navigate cost-of-living pressures, spending intentions among 18–34 year olds remain above the average consumer, and importantly for equity investors, skewed towards discretionary categories.
This is important because youth consumers represent ~28% of Australia’s population (~7.5m people) and punch above their weight in categories like apparel, footwear, eating out and experiences – all areas where spending momentum has held up best.
UBS recently did a deep dive into this sector, that threw up some interesting results;
- Spending intentions for youth consumers remain positive and above average, ticking up slightly quarter-on-quarter and year-on-year.
- Financial optimism is being supported by job security and income stability, with youth unemployment still low by historical standards.
- While pressures from rent and in some cases, interest rates are higher for this cohort, they are less impacted by food and utility costs than older consumers.
A meaningful offset comes from the “bank of mum & dad”, with around half of youth consumers having received some form of financial assistance over the past year, largely directed towards living costs and housing. The result is a cohort that is still willing to spend on non-essential categories, even as headline consumer confidence remains fragile.
Within discretionary spend, clothing and footwear stands out as one of the strongest categories – something I can attest to having two daughters:
- Spending intentions are higher quarter-on-quarter and year-on-year and remain well above the average consumer.
- This category recorded one of the largest positive moves in the latest survey, alongside food eaten out.
Importantly, both 18–24 and 25–34 year olds are contributing to the strength, rather than this being driven by just one sub-segment. This bodes well for retailers with a clear youth brand, fast inventory turnover, and strong alignment to fashion trends rather than functional basics. Universal Store (UNI) sits right in the sweet spot of this trend.
It directly targets the 16–35-year-old consumer, aligning almost perfectly with the cohort showing the strongest spending intentions. The business is levered to fashion-led apparel, where youth spending momentum is currently strongest, and they are directly benefitting from category growth rather than relying on broader retail recovery.
UNI operates stores under the Universal Store banner and also owns other retail concepts such as Perfect Stranger and the Thrills brand, stocking a mix of international and local brands (e.g., Champion, Tommy Jeans, Wrangler) alongside its own labels, selling via physical stores and online. That’s a combination that resonates with this cohort, and UNI has done a good job of creating very good customer experiences through either channel, proving their ability to take share in a tough retail environment.
- Trading on an Est PE of 16x, growing earnings at ~11-13%, paying a dividend yield of 4.6% (fully franked), with 10 buys & 1 hold across analyst coverage, this is a $660m business we like for discretionary retail exposure in the smaller end of the market.
