FOCUS: The Senior Market has arrived

Mar 15

The fact that Japan has the most rapidly ageing population in the world may be well known, but the impact of this change is still only vaguely understood. Retailers, however, are at last beginning to think through the implications and respond – they have little choice. 

 

CHARTS

CHART 1: Seniors as a percentage of Japan’s population, 2011-2025

CHART 2: 2a: Senior Consumption Relative to Average (% difference) 2b: Senior Consumer Expenditure Change by Category, 2009-12 (%)

CHART 3: Senior Consumers Online Purchases

 

During the past 30 years of economic development, marketing in Japan has overwhelmingly favoured youthful targets. While other retailers in countries with large numbers of seniors have met the market head on with new services and products specially designed for older consumers, in Japan it has never really been cool to be old. True a lot of heavy spending, particularly on more glamorous, some would say ‘frivolous’ merchandise does happen largely among the young, but Japanese demographics and changing tastes have caught more than a few brands out. Some top brands like Muji have found their positioning out of sync with a clientele that has suddenly, inexplicably aged, and newer young consumers don’t find such brands anywhere near as appealing. Indeed, there is a significant body of research describing how Japan’s market is defined by its generations, with each largely preferring to develop its own set of tastes and brand preferences.

In the past year, we’ve finally seen a number of new initiatives that target older consumers. Isetan-Mitsukoshi has launched a specialty store format aimed at older people called MI Plaza. Keio Department Store, which has been at the head of this curve for some years by necessity of its existing clientele’s demographics, has made further adjustments to its Shinjuku store and merchandise for senior shoppers, and is expanding its small chain of specialty womenswear stores designed to work in SCs, all targeting women aged at least 50 but probably quite a bit older. Matsuzakaya’s Ueno store has implemented a system where elderly shoppers can have assistants run around a store for them, while they themselves browse potential purchases from the comfort of an armchair using an iPad.

These are all just early examples of how retailers are adjusting, not only accepting senior consumers, but actually targeting them directly and even primarily. It’s early days still, but in the next five years, catering to the tastes and needs of senior consumers will become mainstream for a much broader group of retailers.

Retired AND mainstream

For much of the postwar period, established corporate culture favoured a retirement age of 55, with most executives then taking a second career usually at an affiliated company. Since 1986 the government has been trying to push up the retirement age, providing incentives to keep people on until 60. In 2012, a new bill was introduced to increase the official retirement age to 65 and there is discussion now of raising it further.

In actuality, the official retirement age is fast becoming something of a moot point in Japan due to the practicality of demographics. Companies used to push people out early because corporate culture tended to dismiss many men in their 50s as wall flowers, pulling high salaries based on their age, but incapable of taking real responsibility. Younger people were hungrier, more effective, and much, much cheaper. This system, called nenko joretsu – age superiority – where pay and promotion was determined entirely by age rather than performance, still exists in archaic parts of the economy such as at many banks and all universities.

Today, however, older people are so numerous and so keen to work, that they are often seen as ideal workers. The official retirement age is 65, but what the OECD calls the ‘effective retirement age’ is 69 for men and 68 for women; only Mexico, Korea and Chile work longer and no other developed country comes close.

Senior people are healthy, want to work, have lots of experience and are generally diligent and enthusiastic. They’re also no longer career orientated and are often quite happy to do fairly menial jobs – although being appreciated and able to take genuine pride in their work are key incentives for most. For some, the economic benefit of continuing to work is important, but for many the opportunity to keep moving and to socialise is of equal benefit, if not greater.

And the numbers are likely to increase. In 2013, the proportion of Japanese aged 65 or older, broke 25% for the first time – if all those youthful foreigners living in Japan are included, the average drops just slightly. Regardless of whether they actually retire, the number entering this retirement age window has increased in the past three years and will continue to accelerate up to 2025 (see Chart 1). In 2011, 23.1% of Japanese were over 65, with 54% aged 25 to 64, representing the bulk of the workforce. In the two years to 2013, the workforce had dropped to 52.5% of the population, with the 65 and above population jumping to 24.8%. A further 9.7 million people, 7.7% of the population, are currently aged 60-64, and these will also enter the retirement window before 2020. By 2025, 30.1% of Japanese will be 65 or older. The core working population aged 25-64 will drop to below 50%, and the proportion of young people aged 0-14, will drop to just 20%.

The result is that senior consumers will have to be treated as mainstream both by employers and, increasingly, by retailers simply by the sheer weight of numbers. Marketing may still go after the incomes of the young, but the senior market has passed a watershed that means it can no longer be ignored.

Diligent, active and spending more

More retailers and brands will look to come up with solutions, formats and marketing ideas to attract the senior market, and it is clear that different approaches will be needed as these older consumers are certainly not the same as their younger counterparts. In each product area, different appeals and value concepts will be required to make a proper impact. In some, such as apparel, a little more practicality, function and a certain amount of flattery might be the solution. In homeware and furniture, quality will be key. For food, tradition, local provenance and healthiness. Senior consumers will also demand solutions to help them socialise that provide security and comfort. Common to all product sales will be the need for high levels of service to make purchasing easier and reliable, yet still at competitive prices – seniors are already some of the most avid net comparison shoppers.

Senior consumers, at least in the current generation, have saved diligently for much of their lives with close to 90% owning their own homes – and have paid off enough of the loan that it won’t be too big a burden on their offspring. Recent changes to the inheritance tax system mean second generations can only avoid a newly designed tax on the value of homes after a parent’s demise if they are living together at the time. In major cities at least, this is expected to encourage quite a few adult children to live with parents again. Older consumers still have large volumes of savings too – particularly in longer term savings plans and stocks, although older people use the post office little more than an average household. In 2012, the average two person household had savings of ¥16.58 million (those still working actually had slightly more), while those over 60 averaged ¥22 million.

This stock of savings, coupled with the threat of increased inheritance taxes and the pressures on their children from the decline in disposable income (see JC1402 Focus), means senior consumers will be increasingly encouraged to spend. The question is: on what?

In 2012, the average two or more person household spent ¥286,169 a month. Compared to this figure, households aged 65-69 spent 4.4% less and those over 70 a significant 17.1% less. While this is discouraging for companies looking to justify spending more marketing budget on senior consumers, 2012 again represented a watershed in senior consumption too. For the past five years, the difference between what senior households spend and the average has been falling rapidly – of course, partly because senior households make up an increasing part of the total, but the increase in average expenditure by senior households far exceeds the increase in their number. In the next five years, spending – at least in the 65-69 age group – is likely to move close to the average. Some younger household groups will still spend more, but there will be less of a difference overall.

OutSPending younger generations

Already senior households outspend younger counterparts in a few minor areas (see Chart 2a). As would be expected, older people spend far more than younger consumers on medical care, drugs and services, with those over 70 spending the most of any age group. This is clearly an area that will grow in coming years and one that some drugstore chains are already focusing on. Similarly, senior consumers also spend more on domestic services, another sector that is growing in terms of supply options available, especially given often lucrative government subsidies available for companies in this area.

In food, seniors spend more on seafood, fresh vegetables and fresh fruits, and have always done so, with those over 70 spending the most of any household type in all three areas. The difference between seniors and the rest is also widening, but as more people enter the bottom end of the senior generation, this gap may close as generational food preferences change.

Immediately after retirement, spending on household repairs and maintenance spikes. In 2012, 65-69 year olds spent 20.9% more than average on this subcategory, while those over 70 also spent 16.7% more. There is a similar increase in spending on household durables immediately after turning 65, and in 2010 and again in 2012, increases in spending on bedding. Furniture and home refits could well turn out to be major markets targeting senior consumers in the short-term.

While seniors spend more on the more minor areas of cloth and thread, and slightly more on books and reading materials, the other really important point of difference is spending on socialising. In 2012, 65-69 year olds spent 30.6% more than average on socialising, while those over 70 spent over 24% more than the average. These figures have been consistent for many years. The type of socialising enjoyed by older consumers is often different to that of younger ones, but it is a growing and important market.

In addition to the differences in expenditure by volume, a considerable number of categories are seeing spending growth driven by senior consumers (see Chart 2b). Once again, home furnishings, durables and bedding all standout. Seniors’ spending on interior furnishings alone grew 40.7% from 2009 to 2013, while overall household durable spend was up 18.6%. Other categories which grew significantly include cloth & thread, medical services (although medical care overall grew by far less) and both public and private transport. Seniors’ spending on textbooks and other learning aids also jumped 10.8% in the same period, suggesting more senior interest in studying after retirement too.

These trends will continue to develop, but it is clear that post-retirement senior consumers want to spruce up their homes and have money to spend on socialising with friends and family, in addition to the obvious need for medical care and services.

How to market to seniors: online

The question remains as to how to reach these consumers. According to a recent survey, one way is through selling online. More than 70% of a sample of 3,000 seniors said they regularly used the internet for more than just email, and of these, 48% used it every single day. Senior consumers spend a third less than average on communications, but the amount is quickly growing. While some in the same survey reported they found the internet and smartphones difficult to understand, many of those who didn’t use the internet were keen to do so if the price was right and the technology easy enough to follow. Over 94% used PCs, but already 18% used smartphones, about half the number of those using older mobile phones, and 13% used tablets. 15% of them even used social media.

In terms of actual internet use, bus and train timetables, maps and directions, and general searching were the three most common aims, with more than 80% of users in both genders using these services – 90% of women used the net to find transport timetables. The fourth most common use, however, was shopping with 81.6% of women and 73.8% of men searching the net for things to buy. The reasons given were similar to those for any generation:

  • find more items
  • save time and effort
  • save money.

When asked what they had bought (Chart 3), close to 50% had purchased electronics online (55% for men alone) and 42% had bought books, CDs or DVDs. Fashion items came third. Only 26.9% of seniors had bought fashion items online overall, but 37.5% of women had done so. Health foods are also popular, as are homeware, cosmetics and various forms of gifts, notably regional specialities.

When they’re not shopping or checking train times, senior consumers like to watch YouTube. More than 30% of both men and women said watching YouTube and similar online video channels was fun to do. Women, however, far prefer ‘tabelogs’ (eating blogs) and gossip sites with 38.8% saying they regularly read these sites. Men, in contrast, like to look at corporate sites to keep up to date with the business world, with 53% of men reading company sites on occasion.

A genuine opportunity but watch out for dying cities

With more and more people rapidly entering retirement, at least for the next 10 years, many parts of Japan will see the emergence of a new generation of healthy and highly active senior consumers with an unprecedented level of liberty and prosperity. They will spend heavily in particular areas and, while concerned about being able to afford at least 20 more years of healthy, mobile living, they will be keen to remain active and engaged more than any senior generation of the past. Many will stay in the workforce, and most believe the effective retirement age will soon skip above 70. Small local economies will increasingly come to rely on this eager new community and workforce. Companies intelligent enough to treat these consumers with respect and meet their interests and needs with products and services designed to help them enjoy their later years, could potentially make a lot of money.

The growth of this group, however, also means the average age in Japan will increase. In some parts of the country, the large number of seniors, coupled with an equivalent drop off in the number of children and even the working age population, has already led to towns and villages that are dominated by people in their 70s and above. These places are already a problem for Japan and will grow in number. They present issues in terms of welfare, medical services and basic mobility at the very least, but also signify faltering economies and serious depopulation – they are in effect dying communities demographically, economically, culturally and socially. Right now, many are becoming increasingly rundown and, for those who live there, life can be shockingly hard.

Conversely, with life so hard, seniors are also following the young and migrating away from such places to major urban centres because of the mix of good services, better economies and just the fact that a more vibrant environment is so appealing. There is growing polarisation between dynamic cities and dying surrounding areas, with regional capitals generally gaining, but with the largest cities overall seeing the most immigration. As migration flows and more Japanese become seniors, marketers will need to not only work out how best to serve and sell to them, but also identify where they are moving to.

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