Cash-strapped younger Australians are driving a new market trend by turning to “little luxuries”, such as downsized bottles of alcohol and cosmetics, and rented wardrobes, as high living costs persist.
Industry analysts say this novel behaviour, not witnessed in past generations, contrasts with the historical, cautious response from strained consumers of forgoing non-essential items altogether to avoid debt.
Grant Davidson, a consumer brand specialist, says the younger cohort is embracing “selective curated products”, buying generics for items they deem unimportant to free up money for premium products and experiences.
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“On the items they see as important, they will indulge,” says Davidson, from the branding agency Principals.
“They are the first true digital natives and incredibly savvy at finding workarounds and discounts.”
Retailers are tapping into the trend set by generation Z – those aged under 30 – with more wine labels now offering half bottles. Australian Vintage went a step further by releasing the 187ml format, representing a single glass, which resembles a test tube.
Boutique beer makers are enticing younger drinkers by selling “squat” 250ml cans, which are two-thirds the normal size. The smaller servings are also suited to younger consumers, who, compared with past generations at the same age, are known for drinking less.
Rented wardrobes
Numerous subscription clothing businesses, such as Nuuly, allow customers to rent their wardrobes, while platforms such as Depop have popularised buying and selling secondhand clothes.
Davidson says the “shop to sell” mindset means today’s young consumers view purchases differently to their parents.
A person buying a $300 jacket might believe they can resell it for $200, which means they view it as a $100 purchase, he says.
The little luxury trend is partly linked to the prolonged nature of inflation-fuelled price rises, as well as relentlessly high housing costs, which make the current situation different from previous short-term economic shocks.
Many are seeking ways to navigate affordability pressures without completely giving up on indulgences that past cohorts of young adults enjoyed.
Twenty-eight-year-old Kayshini Logeswaran says while she cut back on “impulse purchases” at shopping centres in response to persistent price rises, she is happy to pay for experiences.
“If a product isn’t on sale, I’m reluctant to buy it,” says Logeswaran, who works as a business analyst in Sydney.
“I’m more inclined to spend my money on experiences, like trips, than actual products.
“Self care is important, and experiences give you an opportunity to make more memories.”
The consulting firm McKinsey found younger consumers are more willing than previous generations to spend on experiences they see as enriching.
Other distinguishing features of gen Z include a focus on sustainable business practices, with many open to paying a premium to buy from ethical brands.
‘Escape from reality’
Spending during a cost-of-living crisis means more young people are plunging deeper into debt.
Data from the consumer credit reporting company Experian shows younger Australians are turning to personal loans for debt consolidation, and arrears are rising.
The default risk profile of young credit card holders has worsened over the past three years, even after the pace of inflation slowed from its 2022 and 2023 spikes.
Credit default risk by age group
Barrett Hasseldine, head of data science at Experian, says there’s evidence young consumers are using credit to manage tight budgets, or that they are over-spending as prices continue to rise.
“In either case, these are warning signs of potential problems, either economic or purely behavioural,” he says.
Researchers have also found there is an element of financial defeatism behind the spending patterns, whereby a young consumer reasons that with home prices so out of reach, they may as well buy a Cartier watch.
Hande Akman, research director at the youth-focused research agency YouthInsight, says “little luxuries are an escape from reality” for a generation coming of age during a period of ultra-high living costs.
“I’ve been doing research for 30 years, and this is the most interesting age group I’ve looked at,” Akman says.
“They want discounts, but they also want to know what’s on trend.
“They worry about the cost-of-living crisis, but they are not so worried that they stop buying luxury items.”