The CQ: Teen Subcultures are Fading & Why Costco is So Loved
The Forerunner Team's Top Read of the Week
The CQ is Forerunner’s weekly newsletter rounding up the most pressing consumer news and analysis, plus some bonus musings from our investment team. Subscribe now to get the latest edition in your inbox every Saturday.
By Forerunner
What We’re Talking About on Slack:
From the New York Times: Teen subcultures are fading. What teens today have instead is “a hyperactive landscape of so-called aesthetics”—think: preppy, cottagecore, Tomato Girls—by way of TikTok and Pinterest that often change within weeks of appearing. “Part of what makes it hard to describe is that it is not rooted in any specific culture; it seems to be largely about being fun and a girl and buying things packaged with a bright color on a white background. There is no deep ethos to it, no shared experience other than posting videos of shopping hauls or makeup routines — pastimes usually engaged in alone, in your bedroom.”
How Buy Now, Pay Later apps are changing as they mature: New, user-friendly startups have taken off since the pandemic, thanks in part to the lack of rigorous credit checks and regulation. Originally apps, such as Klarna, Affirm, and Afterpay, were targeted toward millennial and Gen Z consumers purchasing under-$200 fashion items. But this past December, Klarna reported that its fastest growing age segment was the 60+ group, and home and garden was the most popular category shoppers use the app for. Some people have been using BNPL to pay for energy bills, takeout, and groceries.
It’s the end of the web as we know it. The internet used to be driven primarily by search, but AI-powered “answer engines” will soon become the norm. This shift is already changing traffic to websites, but this could also create an opening for startups to challenge Google. Another issue is the influx of dubious AI-generated content taking over search results, Google Maps, shopping listings, and other “featured snippets.” “The recent surge in low-quality AI-generated content poses significant challenges for Google’s search quality, with spammers leveraging generative AI tools, like ChatGPT, to produce content that—usually temporarily—ranks well in Google Search.” This may lead to a rising distrust among the public.
Why is Costco so loved? The Economist breaks down the reasons, starting with their hot dog-and-drink combo that hasn’t budged from $1.50 in nearly 40 years. The world’s largest retailer behind Walmart and Amazon sticks to a simple strategy: “hook shoppers by offering high-quality products at the lowest prices.” They keep markups low while charging a fixed membership fee (which netted more than half of Costco’s 2023 profits) and stocking fewer distinct products. Plus, the company is known for paying its employees generously and promoting from within. Apparently, it’s working. Membership-renewal rates are upwards of 90%. Costco’s return on capital is nearly 20%, more than twice as high as Walmart’s, even though its sales are less than half. And staff turnover is just 8%.
The spend, spend, spend strategy behind Temu’s rapid ascent in America. The discount marketplace was the fifth-largest advertiser in the U.S. by digital-ad spending in the fourth quarter of 2023, driving up ad prices by outbidding rivals and luring away shoppers from dollar stores, Etsy, and even Amazon. “Analysts say Temu is disrupting U.S. e-commerce with tried-and-true competition tactics used by Chinese companies, which involve earning razor-thin profits or losing money in exchange for market share.”
Something to keep in mind considering the real possibility of AI hallucinations: Air Canada has to honor a refund policy its chatbot made up. When a customer asked an Air Canada chatbot about the airline’s bereavement travel policy, the chatbot replied with inaccurate information. When the customer tried to follow through as directed, his request was denied. So the customer filed a complaint with Canada's Civil Resolution Tribunal. Air Canada’s argument was that the customer "never should have trusted the chatbot and the airline should not be liable for the chatbot's misleading information because the chatbot is a separate legal entity that is responsible for its own actions.” The court ultimately sided with the customer.
More teens have started investing—about a quarter of Americans between 13 and 17, estimates a recent Fidelity survey. Technically no one under 18 can open a brokerage account, but adults can set up custodial accounts for minors, which can then be transferred to them when they reach legal age. At Schwab, custodial accounts increased to above 300,000 in 2023, up from nearly 200,000 in 2022, and 120,000 in 2019. At brokerages and smaller financial apps, like Greenlight, that don’t offer custodial accounts, teens ask their parents to open an account and share their login with them. In 2023, teenagers invested $20 million using the Greenlight app, up from around $10 million in 2021. “The boom in teen trading is part of a wider rush to financial markets among Americans since the start of the Covid-19 pandemic. Stocks rocketed higher, drawing hordes of newbie investors trying to profit from the big gains.”
How Americans define a middle-class lifestyle—and why they can’t reach it. A Washington Post poll found about 9 in 10 adults said these six indicators were necessary parts of being middle class: a secure job, the ability to save for the future, the ability to afford an $1,000+ emergency without debt, the ability to pay bills on time, having health insurance, and the ability to retire comfortably. However, only about a third of Americans meet the criteria. “Americans also underestimate the income required for that lifestyle, suggesting that the popular image of middle-class security is more of an aspiration than a reality for most Americans.” In 2022, Pew Research Center defined a middle-class income for a family of four as $67,819 to $203,458. But according to the Post poll, most Americans considered the lower end of that range, $75,000 and $100,000, to be middle class.
Rising costs, not enough savings, and boredom are bringing retirees back to work. While there aren’t exact numbers, survey data suggests that 1 in 8 people who are retired plan to return to work in 2024. One issue: Many underestimated their expenses. A different survey found that those still working expect to spend 42% of their income on food, housing, and other basic expenses, but retirees spend 53% on those expenses. Also, more people stopped working earlier due to layoffs, illnesses, or caregiving—the average age of retirement is 60, but the average expected age of retirement was 67. Many of the unretired return to work to keep busy or find a sense of purpose, opting to take jobs that employers have a hard time filling, like school bus drivers or at nonprofits.
Wall Street isn’t convinced the economy is booming. Following months of generally cooling inflation, last week’s consumer-price index and producer-price index reports suggested an unexpected increase in price pressures in January. “Analysts have hardly dismissed recent economic data entirely. In addition, some are more worried than others that it is now looking harder for the economy to achieve the much wished-for soft landing, with inflation stabilizing at 2% without a recession.”
Portfolio Highlights:
Fortune reports on Wonder’s expansion of adding food halls in Walmart stores.
Business of Fashion covers the launch of Prose’s skincare line.
Pitchbook names Oura as one of the European VC-backed unicorns most likely to go public.
Chime’s survey on how couples manage their finances is featured in MSN.
WWD speaks to co-founders David Andrew Sinclair and Melanie Goldey about aging and the possibilities of their company Tally Health.
AOL covers a report from Atticus on AI-powered frauds targeting Social Security recipients.