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3 Sep

How Will Student Loan Payments Impact Gen Z and

Today, student loan interest resumes for 43 million U.S. borrowers, with payments set to return starting in October. 

It’s the primary time American borrowers — who owe a collective $1.6 trillion in student loan debt — will probably be expected to repay their loans since March 2020, when the Department of Education’s COVID-19 student loan forbearance program took effect. 

And though the return of payments impacts Americans of all ages — 2023 data from Statista indicates that Gen X carries the most important average value of student loan debt, followed by Baby Boomers and Millennials — Gen Z is anticipated to soon overtake older generations in average debt because the cohort ages up. 

“There isn’t any doubt that the resumption of payments goes to weigh heavily on Gen Z and the Millennials,” said Patricia Buckley, director of economic policy and evaluation at Deloitte, noting bank card delinquencies are up among the many two groups, and so adding student loan payments to an “already precarious situation — it might’t not be an issue.”

A recent study by The Harris Poll on behalf of Intuit Credit Karma found that greater than two in five federal student loan borrowers expect to go delinquent on their student loan payments once forbearance ends, and that 53 percent of borrowers are struggling to pay other bills, including auto loans and mortgage and bank card payments, even without adding student loan payments to the equation. 

Even amid this economic uncertainty, though, the sweetness industry has remained buoyant to date.

First-half data from Circana shows prestige beauty stays the one industry across general merchandise and consumer packaged goods to be growing in each units and dollar sales, with makeup being the fastest-growing category within the channel.  

Mass beauty, meanwhile, has seen growth in dollar sales because of higher average price increases — prices have increased 10 percent within the channel versus last 12 months, while prestige beauty price inflation has been under 5 percent since 2020 by comparison — but unit sales are on the decline. 

“Mass prices are still much lower, but we’re paying significantly more for the sweetness products on the mass side. That leap from mass to prestige becomes less of a difference; it becomes easier [for consumers] to make,” said Larissa Jensen, senior vice chairman, global beauty industry adviser at Circana. 

Data from NIQ shows 63 percent of Millennial shoppers and 61 percent of Gen Z shoppers are buying luxury beauty, versus 59 percent and 48 percent of their Gen X and Baby Boomer counterparts. 

“This might change, but we’re not seeing any indicators of cutback yet,” said Anna Mayo, vice chairman of beauty at NIQ, noting beauty spend amongst Millennial and Gen Z consumers continues to be “seeing strong growth amongst the main beauty categories.” 

It’s price noting, though, that the Biden administration is allowing borrowers a 12-month grace period through September 2024, during which missed monthly payments is not going to be considered delinquent or reported to credit bureaus. 

“I feel [student loan payments] will probably be an increasing risk factor starting next October,” said Oliver Chen, managing editor and senior equity research analyst at Cowen and Co. “That [grace period] may very well be a partial offset.”

Jensen anticipates that at the same time as debt-ridden consumers make cuts to their spending, the prestige channel will likely proceed to outpace mass by way of growth: “I don’t think that [student loan repayments] are going to vary anything by way of the importance of mass or prestige in totality; even when mass improves a bit of and prestige softens a bit of, I feel overall the trend will remain the identical.” 

Moving forward, cash-strapped consumers will likely prioritize brands and products that provide value on multiple levels. 

“Brands and retailers have to persuade Gen Z and Millennials that their company is a key — key’s not even a robust enough word — that company is a vital a part of their identity,” said Erik Gordon, clinical assistant professor at University of Michigan’s Ross School of Business.

Added Chen: “Value can are available many forms, but definitely price point, convenience, and efficacy relative to cost.”

Data from Spate, for instance, demonstrates the growing relevance of dupes in beauty, with consumers increasingly searching for out wallet-friendlier yet effective alternatives to prestige beauty favorites. 

At an 83.3 percent increase since last 12 months, U.S. Google searches for Dior Beauty dupes are the fastest-growing alongside any prestige brand. Searches for Le Labo dupes have seen a 43.6 percent increase throughout the period, and at 24,000 average monthly searches, Charlotte Tilbury reigns because the most-searched beauty brand alongside “dupe.” 

“The profit for the sweetness industry within the immediate term is, it could lose dollars but it surely’s not necessarily going to lose consumers,” said Wendy Liebmann, founder and chief executive officer of purchaser insights firm WSL Strategic. “There are quite a lot of ways to still be a part of the sweetness world in a way that’s inexpensive, whether it’s trading down from Lancôme to E.l.f., just using up what I actually have, or using smaller sizes.” 

Added Mayo: “We’re seeing some dynamics with stretching out purchase cycles — on average, persons are waiting per week longer to replenish.” 

The growing connection between wellness and wonder, too, poses a possible profit to the industry’s performance. “There’s more rationale around why I might still spend on beauty, since it’s also an element of my emotional, physical well-being,” Gordon said. 

On the subject of makeup, one among beauty’s hottest categories of late — Circana reports prestige makeup grew 18 percent in dollar sales and 13 percent in units throughout the first half — Spate cofounder Yarden Horwitz noted consumers are seemingly going back to the fundamentals. 

“We’re seeing quite a lot of interest in things like foundation, face makeup, base makeup products, whereas more of the accent colours — things like coloured eyeliners and so forth — aren’t seeing as much traction as they were last 12 months or the 12 months before,” Horwitz said. 

The wonder aesthetics dominating TikTok of late exhibit as much: “latte makeup,” which consists of neutral, brown-toned lip, eye and face makeup, counts greater than 318 million hashtag views on the platform. Its predecessor, “clean girl makeup,” which is actually one other term for no-makeup makeup, has racked up greater than 891 million TikTok hashtag views. 

“I feel, normally, the more gimmicky and more experimental products that don’t actually show immediate value may very well be on the chopping block,” said Horwitz, adding that the buy-first-think-later mentality that dominated TikTok’s beauty sphere throughout the early days of the pandemic appears to be on the outs. “For probably the most part [consumers] are going to take a position in high-quality products that they’ll use in a more subtle way on a day-to-day basis.” 

On the subject of scaling back beauty spend, Mayo said income is just as much — if no more — of an element as a consumer’s generation.  

“It’s the consumers who’ve less money who’re making harder selections, whereas those who’re making, , over $100,000 will not be really having to in the reduction of on much,” said Mayo, adding that because fragrance and cosmetics are more impulse-driven categories, those may very well be areas by which consumers could look to in the reduction of.  

A July survey conducted by Circana indicated 70 percent of consumers plan to cut back spending within the face of student loan payments returning, a majority of whom were female and Hispanic. 

“Hispanic consumers are very engaged in the sweetness category, especially in fragrance,” Jensen said, adding that “young, lower-income and ethnically diverse” consumers have been significantly driving interest in higher fragrance concentrations, one among the important thing drivers of the fragrance category’s growth. 

“We do expect fragrance to be positive on the prestige side — it’s just that the expansion will slow,” said Jensen. 

The Harris Poll’s study on behalf of Intuit Credit Karma indicates 19 percent of Hispanic Americans have outstanding student loan debt, behind 30 percent of Black Americans and greater than 15 percent of white Americans. 

In accordance with Credit Karma’s State of Debt and Credit Report, all generations saw a decrease in overall debt throughout the first half except for Gen Z, whose debt remained flat. 

“No matter inflation, whatever the cost-of-living crisis, people do have recession fatigue, particularly Gen Z — there are still an enormous cohort of people that will not be taking any steps to get their funds so as, and so they still need to treat themselves,” said WGSN’s senior retail strategist Laura Saunter. 

Even so, said Saunter, many consumers are pondering otherwise about not only the worth of their products, however the perceived values of the retailers and types peddling them. 

“Retailers and types are going to should think loads more about altruism toward consumers in the event that they need to attract long-term loyalty. Price freezes, generous discounting, philanthropy — things like which are going to be necessary,” she said. 

Liebmann echoed the sentiment. 

“I wouldn’t take Gen Z and Millennial consumers with no consideration — don’t assume they are going to just keep coming. Understand that in the event that they’re coming for the ‘small indulgences’, you higher make it special —  whether it’s in-store or online, you higher make that have and the product innovation, quality and value evident, because these are tough shoppers.”

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