The Experience Economy

“The experience economy is surging amongst Britons, despite the concurrent squeeze of inflation”

Two years ago, IKEA’s Chief Sustainability Officer Steve Howard made waves when he commented that consumers in the West had reached “peak stuff”. In his eyes, the rampant materialism of the 20th century had given way to a new rejection of accumulation. “Broadly, you saw a tremendous expansion in consumption and people’s livelihoods through the 20th century,” he said. But these days it, “is plateauing out.”[1]

In 2018, his prognosis is holding true. According to Barclaycard’s end-of-year report, the experience economy is surging amongst Britons, despite the concurrent squeeze of inflation. Spending on overall entertainment grew by 10.2% in 2017, boosted by a 12.2% surge in pubs and 12.6% in restaurants, while theatre and cinema spending ticked upwards by 6.6%.[2] In contrast, department stores – those former, grand emporiums of ‘stuff’ – crisis is the new industry norm[3], and 2017 saw the lowest growth in retail spending since 2013.[4]

“Spending on overall entertainment grew by 10.2% in 2017”
We may still be living in a material world, but it’s clear that consumers are increasingly prioritising memorable experiences, bold adventure travel, and – when they do shop – interactive and highly personalised experiences over endless, unthinking tides of ‘stuff’. As to be expected in a paradigm shift of this scale, there are myriad motivations at play.

One factor is a growing penchant for minimalism. As noted in Euromonitor International’s Global Consumer Trends in 2018 report, minimalism – the celebrated reduction of ‘stuff’ – is a pivotal trend amongst today’s consumers, particularly those tastemakers in the 20-29 age bracket. “Consumers are adopting clean-living, more minimalist lifestyles, where moderation and integrity are key,” according to the report’s authors, which means that “[t]heir need to impress is less through ownership, and more through experiences they want to share.” [5] Conspicuous consumption is no longer de rigueur.

Lately, this emphasis on stuff-shedding has taken on an aspirational, Japanese inflection. Marie Kondo’s The Life-Changing Magic of Tidying Up, a de-cluttering guide that was released in 2014, encourages readers to rid their homes of anything that isn’t useful or, famously, which doesn’t “spark joy.” It has since sold millions of copies internationally, spawned a follow-up volume, and inspired an army of devotees of the “KonMari” method.[6]

Alongside minimalism, sustainability is another consumer buzzword for 2018. Living more sustainably means different things to different consumers, but it often works in tandem with an anti-materialist approach. Consumers who turn their backs on the social and environmental ravages of fast fashion, for instance, will enjoy the added benefit of a de-cluttered closet, while those who forego car ownership and embrace sharing economy services will see a lower carbon footprint as well as freedom from a significant and expensive burden. “Cash-strapped consumers want more flexibility and freedom in their lives, and less baggage,” as Euromonitor International’s report notes. Even “previously materialistic Baby Boomers are looking to downsize and simplify their lives”.[7]
“With fewer resources available for leisure, it’s natural for consumers to prioritise enriching experiences over products”
But thriftiness’s new, chic status isn’t random – it’s also a result of economic instability. In the UK, “consumer confidence fell to levels last seen in the aftermath of the Brexit vote. Stalling incomes, combined with rising grocery prices, have forced Britons to budget less for everything else.”[8] For their part, millennials are now the largest spending cohort, and yet their economic prospects are especially challenging; they are forecasted to be the first generation in the modern era to be worse-off than their parents.[9] With fewer resources available for leisure, it’s natural for consumers to prioritise enriching experiences over products. As noted in a recent McKinsey report, “A recent study conducted at Cornell University found that consumers’ ‘evaluations of their material goods went down from the time of the initial purchase to the present, but their evaluations of their experiences tended to go up.”’[10] In other words: building beautiful memories is far more valuable to today’s shoppers than something they can just pick up off the shelf.
The thriving travel sphere provides a perfect case study of the experience economy’s growing success. In a recent study sponsored by Expedia, 49% of millennials and Gen Z self-reported that they would sell their clothes or furniture to travel, while 71% of Gen Z would get a part-time job to save up for a leisure trip.[11] And, in response to desires for personalised, unique trips that live up to such expectations, a host of tour operators and experience providers are stepping up. Experience-driven platforms include EatWith, which invites travellers to dine with locals in their homes, and Vayable and Airbnb Experiences, both of which let visitors book one-on-one, local-led experiences, from samurai training in Tokyo to night photography tours of Paris. Intrepid types now also have a range of opportunities at their fingers, from IGO Adventures—which hosts active getaways in far-flung locales from Montana to Morocco, and aims to connect consumers with “true adventure” – to Rapha Travel, an arm of the cycle apparel company that sees biking enthusiasts take to the saddle in scenic locations from Tuscany to Colorado. The desire for rich travel experiences isn’t only driven by the goal of creating treasured memories, however. Today’s consumers, particularly millennials, are inhabiting a world where “Facebook and Instagram likes and creative snaps are now the ultimate social currency,” as McKinsey notes.[12] “The quest for likes requires a constant stream of new shareable content in the form of stories and pictures,” and travel delivers – particularly those experiences with impressive optics and unique cachet. In lieu of conspicuous consumption, aspirational living is the new way for consumers to build envy and status amongst their cohorts.
Where does this leave companies that aren’t part of the experience economy? “If the writing is on the wall for the purveyors of things, their response is to make the walls more appealing,” [13] including the use of technology and clever marketing in building meaningful relationships between brands and buyers. Brands looking to build consumer loyalty should also think long-term, “through reward programs, educational or community events, leagues or competitions, or the ongoing ability to create innovative new experiences.”[14] Experience isn’t going away anytime soon – but traditional retailers still have room to adapt.

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The Experience Economy

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This article was inspired by a panel talk we hosted at House of Killik Soho in January 2018 with RaphaPatchworkIGO Adventures, Marble LDN and Nick Geoghegan of brand consultancy, eatbigfish. It is designed to throw an everyday lens on some of the issues being discussed and debated by investors across the world; it is not research, so please do not interpret it as a recommendation for your personal investments. If something has piqued your interest and you would like to find out more or discuss what investments might be suitable for you, please contact one of our Investment Managers on 020 7337 0777.