The rising proportion of one-person households, globally, is set to drive discretionary spending in the future.

A series of powerful structural trends, including demographics, are in the process of reshaping almost every element of society. Companies that recognise these trends and anticipate future developments stand to gain market share and deliver superior returns. One notable example would be the number of one-person households which continues to grow, globally. In the face of this development, brands may have to adapt product offerings and prepare for greater engagement with the one-person household¹.

A number of factors, including declining marriage rates, are contributing to a greater number of single households – a trend which looks set to continue. If it does, analyzing the spending habits of single households becomes more of a priority for brands.

Whether as a proportion of the population or as an independent segment of society, the number of single households is getting notably higher. In the US, the number stands at more than 10% of the population. In the UK, there are more people living alone than ever before, according to figures from the Office for National Statistics (ONS). It is a similar story in the EU as the most recent figures show one-person households make up the highest percentage share of all households, with around 32.5%. More than 50% of households in Sweden, Denmark and Lithuania were composed of people living alone in 2016.

While some of this growth is a result of an ageing population, the ONS specifically notes that there have been statistically significant increases in the number of working-age women living alone, for example. In fact, this trend is linked to a wide range of factors, including a reduction in the longevity of relationships and higher divorce rates. Since 1965, the crude marriage rate - the ratio of the number of marriages to the average population - in the EU has declined by close to 50% in relative terms. At the same time, the crude divorce rate has more than doubled. In the US, about half of Americans (53%) predict that people will be less likely to get married than they are now, while the divorce rate remains at around six-in-ten.

If the growth of single person households continues to be a statistically notable trend, what impact could it have on prestige brands?

The U.S. Census Bureau estimates that there are around 35.7 million Americans living alone today, accounting for 28% of households. This indicates an increase from 23% in 1980. According to research conducted by the US Bureau of Labour Statistics (BLS), there are discrepancies between the spending habits of single households and households comprised of more than one person. Singles were found to spend significantly more per capita than married couples on food, housing, apparel, and education, and less on health care, for example.

Singles seem to spend proportionally more on Food, Apparel, Sports, Travel, Luxury and Education

Apparel is a notable sector, given single households allocate a higher proportion of their annual income. Single women were found to spend 1.8% of their average annual expenditure on clothes for themselves, whereas a typical household would spend around 1.2% on the same category of clothing over the course of a year. The same applies to single men, who spend 1.3% of their annual expenditure on clothes for themselves, compared with the 0.7% spent by an average consumer unit consisting of 2.5 people.

When it comes to apparel brands, the LO Funds – World Brands fund (formerly known as LO Funds – Global Prestige) continues to have notable exposure to athleisure particular, including through names such as Lululemon, Athletica, Fila Korea and Li Ning². We have previously touched on the popularity of athleisure brands and this demographic development simply strengthens the argument in favour of its sustainability.

At first glance, it looks as though spending habits are fairly equal when it comes to personal care products. However, when separated out on the basis of gender, there is evidence that single women come out as much higher spenders in this category. The fund takes exposure to this sector through a number of holdings, including Procter & Gamble², which is the parent company of a number of household skin care brands such as SK-II or Ester Lauder.

Food and drink is another area of interest. The average one-person household in the US spends around 5.9% of their annual income on food away from home – which includes eating out at restaurants or buying takeout. This is in comparison to the expenditure for the average household – consisting of 2.5 people – which is 5.6%. The difference is more pronounced between single males, who spend around 6.7% of their annual income on food away from home, and single women, who spend around 5%, according to figures from the BLS.

Assuming the number of single households will continue to rise, there will be a growing market of people who spend a greater proportion of their income on restaurants and takeaway. The LO Funds – World Brands fund is aligned with this trend through its exposure to a number of food and beverage companies, such as Starbucks2. Starbucks is a leader in the food and drink space and is also keenly aligned with the digitalization trend, which we also believe is a major driver of returns. The coffee chain has established a delivery service in China and plans to roll out a similar service in the US in the near future. This would make it well aligned with this demographic shift.

In China, single households are a major driver of retail sales

China in particular is experiencing a rapid growth in single households, so it makes sense that this is where Starbucks would first launch their delivery service. China has the world’s largest number of one-person households and approximately 215 million people were registered as single at the end of 2017, according to the National Bureau of Statistics.

According to a study by McKinsey, China’s online retail market is larger than the US and the United Kingdom combined. The consulting firm estimates that China’s total retail sales volume

will be 1.5 Trillion USD in 2019, representing a quarter of the country’s entire retail sales volume. Single households are a major driver of growth in this market. China even has its own ‘Single’s Day’ – November 11 – which is a popular shopping holiday in China and is synonymous with young, single people. Gross merchandising volume on this day last year was seven times that of Black Friday in the US, according to McKinsey.

Next to traditional e-commerce, social commerce is emerging as a key growth avenue. This is where brands engage directly with these younger consumers through social media. This represents a valuable opportunity for brands since those surveyed claimed to spend as much as 44% of their time on social media. Around 50% said they had been made aware of a product through social media, while 25% said they had made a purchase directly through via social media.

More than half of single people in China have said that between 10% and 30% of their income goes on food and drink. Chinese hot pot restaurant Haidilao², which is also a holding in the Sub-Fund, has launched a simple instant hot pot product to eat at home, in a bid to targets this ballooning demographic and consumers who prefer convenience over a visit to the restaurant. The chain has also introduced large plush toys to partner with solo diners at its outlets.

Single households in China seem prepared to spend more on convenience, as well as education, travel, luxury goods, entertainment and sport. Figures from e-commerce platform Tmall show that last year, the sales of mini-microwave ovens and mini-washing machines rose by 970% and 630%, respectively, year-on-year, while purchases of one-person hotpots rose by 208% over the same period. There has also been rapid sales growth for many other daily-use commodities.

The number of single households represents a growing market. By analyzing the spending habits of this segment of society, we can draw conclusions as to which consumer sectors are likely to benefit from an expansion of this group. The LO Funds – World Brands Sub-Fund is aligned with a number of what we perceive to be significant societal shifts, including those of a demographic nature.