“Nesting”…Retailers Have A Gen Z Problem

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An American aspiration for generations since at least the end of World War II, home ownership has become a luxury that most people under the age of 30, Gen Z, can only dream about – if they even do. Evidence is mounting that many in this emerging generation of consumers are content to rent and spend their spare money on themselves – on looking and feeling good and having authentic experiences.

This trend is a looming challenge for retailers in the home improvement and furnishing industries whose fortunes ebb and flow with real estate cycles. Everyone seems to agree that, for most, shelter has become unaffordable. Given all the circumstances at home and abroad, no one seems to think there will be a turnaround anytime soon.

Sales volumes of existing homes have fallen by about 40% since 2020 and 2021, when thousands of urban dwellers fled the cities and unleashed a “nesting” spree. From sofas to granite counters to grills and mowers, the industry flourished.

That short boom is now a fading memory.

Over the past four years, Lowe’s annual revenue has shrunk by 10%. Home Depot has managed to hold the line on revenue, but its profit margins have narrowed by about 20%.

Wayfair, a major e-commerce furniture merchant that became an overnight sensation in 2020, has posted revenue declines in four of the past five years, racking up $4.8 billion in red ink along the way. Numerous smaller furniture retail chains have gone bankrupt. Even IKEA, which had notched a two-decade run of positive sales growth before 2020, has recorded three down years out of the last six.

The current retrenchment begs for comparison with the crash of the housing market that began in 2008 and lingered for many years. In that cycle, it was in large part the Millennial generation that drove the turnaround – an army of first-time home buyers in their 20s and 30s who were busy building careers, marrying, and giving birth to an army of Gen Z children.

That was then. This time is very different. Gen Z will not be rescuing the housing industry anytime soon.

For starters, either by choice or necessity, close to half are still living with their parents, according to U.S. Census Bureau data from 2024. The kinds of living-wage jobs their parents were able to get in the 2010s are gone or going, courtesy of AI.

But even if Gen Zers had the jobs to pay for weddings and houses and the stuff (and babies) to fill them, it’s not clear they’d be in a big rush to settle down just yet. As we’ve noted here, young adults are spending more of their discretionary dollars on wellness and experiences than they are on stuff. When they are in a “nesting” mood, Zers are likely to start their shopping journey at a thrift store, an online resale site, or a Habitat for Humanity Re-Store.

If Gen Zers seem complacent, it may be the expectation that they will inherit a home one day, or the money to buy one. That’s what they’ve been told, anyway. According to a 2024 survey by Freddie Mac, three out of four Boomers plan to leave their homes or the proceeds of the sale to their families.

The Gen Z gap in household formation is already showing itself in housing market statistics. Since 2007, the share of first-time home buyers has shrunk by 50%, according to a recent National Association of Realtors survey. The survey also found that the average age of first-timers has risen to an all-time high of 40, and that Boomers (ages 62 to 80) now make up more than 40% of all such purchases.

Companies in the furnishing business have responded by featuring products that appeal to renters. IKEA in particular is popular with the 18-to-34 year-old crowd, according to a recent YouGov report.

In the remodeling business, focus is shifting to retrofitting homes for Boomers who, by a wide margin, say they plan to age in place. Ads have proliferated for things like curb-less showers, non-slip flooring, and stairlifts.

After the housing market crash of 2008, it took eight years for home prices to begin to return to their pre-crash highs. This time, the housing market hasn’t crashed (yet) but the elements are in place for a long, slow return to something resembling normal.