Fear of Commitment, Economy Drive Generation Y Shopping Patterns

Report says Millennials don't like signing contracts, threatening an established business model.

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America's young adults are putting off getting married, buying houses, and having kids. And businesses now may be reacting to Generation Y's cold feet.

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Gen Y's reluctance to sign on for long-term contracts or financial commitments is changing how some businesses package their services, according to a new report from market research firm IBISWorld. The members of Gen Y, also known as the Millennial generation, face high student debt levels and gloomy job prospects, but still have significant buying power. This means that "industries that traditionally require long-term contracts or some kind of commitment will need to adapt their business models in order to retain their Gen Y customer base," according to the report.

The trend may mean that certain industries need to change those business models immediately, if not sooner. "In some ways it's happening already, but also we expect it to happen more in the next few years," says Mary Nanfelt, lead analyst at IBISWorld and the author of the report.

One key industry in which these changes can already be seen is in gyms and health clubs. An estimated 24 percent of the industry's $25.3 billion in profits comes from Generation Y. While some clubs require a year-long commitment, the industry is shifting to accommodate shorter-term customers by offering more monthly contracts, says IBISWorld.

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Cable companies may likewise need to shift strategy soon. Generation Y generates 16.2 percent of cable providers' $63.5 billion in profits, but are more willing to scale back than older generations. Among older Millennials—those 23 to 28—19 percent are considering canceling their cable TV, compared to 13 percent of Generation Xers and 7 percent of baby boomers, according to a January study from Deloitte, as reported by GigaOM

This trend in cable TV is also tied to technology. Given new streaming options, both older and younger Millennials are also more likely than older cohorts to view TV shows online.

IBISWorld's report characterizes Generation Y as commitment-phobic, but there's more at work with their spending decisions. Reluctance to sign on to a two-year cell phone contract or a year-long gym membership may be less a sign of a freewheeling, fun-seeking lifestyle and more a sign that the generation feels a strong sense of economic uncertainty.

"A lot of them don't really have the money to make these sort of commitments. They feel a lot of uncertainty about their future," says Carol Phillips, president of consulting firm Brand Amplitude and adjunct instructor in the University of Notre Dame's Mendoza College of Business.

Generation Y is graduating college with massive levels of student debt, and these graduates face high unemployment. As the Associated Press reported recently, half of young college graduates are either jobless or underemployed. Given these harsh realities, says Phillips, reluctance to make lengthy spending commitments is "a prudent response" for Millennials.

While young adults may suffer from economic hardship and commitment phobia, cellphone carriers may be exempt from generation Y's unwillingness to sign onto long-term plans, as many young adults see their smartphones as absolute necessities, says Nanfelt.

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Meanwhile, some industries that do not hawk lengthy contracts are also subject to Gen Y's refusal to settle down; furniture dealers are affected by this trend. It may be due to indecisiveness—"the fear of committing to a style that could quickly become outdated," as IBISWorld's report suggests—not to mention Generation Y's distaste for accumulating possessions, as Phillips points out.

However, furniture dealers are also hurt by young adults' economic circumstances. As has been widely reported, young adults are putting off homebuying, and many are still living with their parents—meaning an altogether smaller need for furniture, especially quality, high-end furniture with a longer life span.