Online Businesses: 55-Plus Age Group Will Have Increasing Effect On Retail

Glynn Davis - Fri 14 Sep, 2007

Who would have believed that in a little over a decade since the internet first emerged we are on the cusp of witnessing the 55-plus age group having the largest representation online. This is just one example of how the behaviour and shopping habits of older consumers has changed. Now they represent a particularly powerful demographic that will have an increasing effect on retail and leisure companies. According to Hitwise UK the over-55s accounted for 22% of UK visits to all categories of websites during the four week period to 12 May. This is stellar growth of 40% since 2005 and an even more impressive 54% since 2005.

Who would have believed that in a little over a decade since the internet first emerged we are on the cusp of witnessing the 55-plus age group having the largest representation online.

This is just one example of how the behaviour and shopping habits of older consumers has changed. Now they represent a particularly powerful demographic that will have an increasing effect on retail and leisure companies.

According to Hitwise UK the over-55s accounted for 22% of UK visits to all categories of websites during the four week period to 12 May. This is stellar growth of 40% since 2005 and an even more impressive 54% since 2005.

Although this is still slightly behind the 35 to 44-year-old group, which represents 23.5% of all internet visits, it is only a question of time before the ‘thirtysomethings’ are overtaken by the so-called ‘silver surfers’.

This term was initially regarded as a bit of a light-hearted joke as the more mature online user was not taken particularly seriously by businesses. The truth of the matter was that until very recently the internet remained firmly the domain of the younger generation as they have effectively grown up with access to the internet.

But this is no more and the silver surfers now represent a significant power base of spending that no online business can ignore. Surprisingly, this growth has come from all types of over-55s, across the wealth spectrum.

Both the Experian Mosaic-classified groups ‘Twilight Subsistence’ (pensioners with little money) and ‘Grey Perspectives’ (pensioners with savings to supplement their pensions) have experienced tremendous growth online with visits to websites by the former up by 29% over the past two years and the latter up by 30% over this same period.

This growth has resulted in a quarter of the online population being over 50 years of age, according to Nielsen/NetRatings. This means that there are 1.7 times more 50-plus year-olds than under-18s now active on the internet.

These people are also doing pretty much everything online, judging by research from the European Interactive Advertising Association They found large percentages visiting a variety of websites such as travel sites (60%), holiday sites (55%), comparison sites (38%), and even online social networking sites (18%). The latter statistic is conclusive evidence that this older age group is now pervasive across all parts of the internet.

And of these people almost three-quarters have shopped online, according to the EIAA, buying an average of seven items worth an estimated £560 during a typical six month period.

This rapidly growing trend for shopping online is proving extremely beneficial to those businesses that have traditionally appealed to the older demographic but who have also successfully managed to translate their offers online.

Sitting pretty in this sweet spot is home shopping retailer N. Brown. Its average customer might be a mature 58 but these people are increasingly moving away from buying via N. Brown’s paper-based catalogues. Instead, they are choosing to use its website, which is a much more profitable way for the company to accept business.

Although N. Brown recently admitted at its results presentation, for the 20 week period to 14 July, that the average age of its customers had dropped slightly, it reiterated that the 45 to 65-year-old group remains a key target online. AlanWhite, Chief Executive of N. Brown, stated: “The era of the silver surfer is with us and we are focusing on expanding the ranges for this sector of the market.”

Amid the welter of good news in its results, online sales shot up by a meaty 42% and now represent 27% of total group sales, White still cautioned that N. Brown’s gross margin had dropped. The reason for this was an increase in bad debts that had been brought on by the fact that the company had attracted a higher proportion of younger customers compared with last year.

The problem here is that younger shoppers are being increasingly squeezed by rising interest rates. The result is that a dwindling percentage of their incomes are now left over after they have paid off their monthly mortgage bills and credit cards.

In contrast, the older customer is less likely to be hindered by a big mortgage and so more resilient when interest rates rise. This highlighs just how attractive this demographic is to retailers and leisure companies looking to attract consumers’ disposable incomes.

We believe more retailers should now seek to position themselves to better target this older audience — both online and through their high street stores. With 75% of its shoppers aged over 45 Marks & Spencer finds itself well placed to sell to these older customers and this is certainly proving beneficial.

It has led investment bank Morgan Stanley to take the view that the company will prove much more resilient than many other merchants on the high street such as fashion outlets Primark (owned by Associated British Foods), New Look and Next.

The impact of older shoppers on the market has not been lost on international grocery experts IGD. Michael Freedman, Senior Consumer Analyst at IGD, says: “Older generations want to retain their influence as they age. Food and grocery companies should think of 60-year-olds as the new ‘fortysomethings’, only with greater purchasing power and high expectations.”

Adding to the power of this group is its rapidly growing numbers. The UK’s over-60 population is forecast to grow by 153% by 2050. Other developed countries are also expected to have similar levels of growth with the over-60s in Germany predicted to increase by 156%, in France 158% and in Ireland 202%.

As a result Freedman suggests: “The number of over-65s is growing rapidly in many major markets worldwide. ‘Sixtysomethings’ have a high acceptance of technology, longstanding exposure to marketing and serious purchasing power, so they will form perhaps the most important consumer segment of the future.”

Although this change in market dynamics will pose challenges for many businesses there are sectors that should reap rich rewards. They include healthcare, money management, cosmetics and leisure and travel.

Proof of how the money and leisure categories are already benefiting from growing interest from the over-55s can be seen from the recent Hitwise numbers. They showed stocks and shares as well as yachting and boating websites received the highest concentration of visits from silver surfers over the four weeks to 12 May. Cruise websites, for instance, received a chunky 48% of their traffic from 55-plus year-old internet users.

While the popularity of cruising to this age group should not be too surprising, that they are undertaking research and placing their bookings for cruises online represents a marked change in behaviour from only a few years ago.

Those companies and sectors unable to tap into these fundamental shifts taking place among older consumers, or those that fail to adapt to them, should be avoided by investors in favour of those that are reacting proactively to the more affluent and empowered older generation that has cash in its hands and knows how to use it.

Regards

Glynn Davis
For The Daily Reckoning 

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