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The Honolulu Advertiser

Posted on: Sunday, February 13, 2005

Bet on boomers' buying power

By Meg Richards
Associated Press

When it comes to her dog, Karen Washburn is like a lot of people: Nothing is too good. When she goes out of town on business, Noah snuggles into his own suite at a pet hotel run by PETsMART Inc.

Karen Washburn and her basset hound, Noah, sit in the lobby of the PETsHOTEL during a visit to PETsMART in Raleigh, N.C. The nation's largest retailer of pet supplies stands to make long-term gains in stocks as baby boomers age. The boomers, born from 1946 to 1964, include about 76 million people.

Gerry Broome • Associated Press


BENEFITING FROM BOOMERS

As many members of the baby boomer generation head toward retirement, a number of industries are poised to benefit from their buying power:

Financial services. Statistics suggest most boomers are not prepared for retirement. Long-term-care insurance and annuities may become more popular products, and financial planners will be much in demand.

Homebuilding. Firms developing communities for "active adults," such as Pulte Homes Inc. and WCI Communities Inc., are expected to do well.

Leisure. Some winners have emerged in the cruise business, including leading operator Carnival Corp. Harrah's Entertainment Inc., the world's largest gaming company, is also well positioned.

Washburn, who adopted her one-eyed basset hound four years ago, hasn't worried about the cost of pampering her pet, installing a custom doggy door at her Cary, N.C., home and indulging him with premium food and romps at doggy daycare.

"They give us so much, so why not? He deserves it," said Washburn, 51. "He is just the sweetest boy in the world."

Wall Street is betting on baby boomers like Washburn, who are just the sort of customers that PETsMART and many other companies are looking to cultivate. The post-war generation, born from 1946 to 1964, represents about 76 million people — a huge block of consumers with unparalleled buying power. Now, as they lope into retirement, the spending habits of boomers are starting to change, and many investors are looking for ways to profit from the shift.

"This is a dominant group that still has huge buying power, and as they age they will continue to dominate trends, as they have throughout their entire lives," said Janet Engels, director of private client research with RBC Dain Rauscher. "It's just rethinking, what is this group all about? They are sophisticated buyers, they like bells and whistles and they like to treat themselves well."

Baby boomers are educated consumers who love having lots of choices. Lifestyle is everything for this group, whether they're shopping for pet care, a cruise ship vacation, financial advice, cosmetic surgery or a knee replacement. Industries that traditionally cater to older people, such as pharmaceutical companies, hospitals and assisted living facilities, will have a much larger customer base as boomers age.

Companies that specialize in orthopedic devices, such as Zimmer Holdings Inc. and Stryker Corp. are well-positioned, especially as they develop longer-lasting replacement parts that can be implanted in increasingly less-invasive procedures. Homebuilders developing communities for "active adults," such as Pulte Homes Inc. and WCI Communities Inc., are likely to have the demographic wind at their backs. And, for the famously self-absorbed "me generation," cosmetic products and surgery will play an important role in the decades ahead, which could spell strong sales for stocks like Estee Lauder Inc. and personal care specialist Procter & Gamble Co., Engels said.

"No one ever wants to admit they're getting older, and this particular group has never wanted to get older," Engels said. "Even the average baby boomer of moderate income will look to personal care products. (P&G's) Oil of Olay is not just for grandma."

Statistics suggest most boomers are not prepared for retirement, a trend that some observers believe will benefit the financial services industry. Long-term-care insurance and annuities may become more popular products, and financial planners will be much in demand as boomers try to catch up.

Professional investors are also eyeing the leisure industry, as a soaring number of boomers opt to spend their free time and discretionary income on cruises, gambling and home entertainment. Demographics are likely to work in the favor of these industries in the decades ahead, said Mark D. Greenberg, portfolio manager of the AIM Leisure Fund (ILSAX), which profits from consumers' desire for expensive jewelry, exotic vacation and other extravagant pleasures.

"If something didn't have the long-term trend in its favor, I'm not saying I wouldn't buy the stock, but it's unlikely," Greenberg said. "There could be a time you want to buy a stock because somebody is doing a good job, or it's cheap ... but over the longer term, you like having the trend in your favor."

Some winners have emerged in the cruise business, Greenberg said, including leading operator Carnival Corp. He also likes Harrah's Entertainment Inc., the world's largest gaming company. In addition, he notes, the most forward-looking companies in these industries are quietly upgrading their facilities to meet the needs of an aging clientele. Greenberg has spotted special bins for diabetics to deposit insulin needles in casino restrooms, and found expanded medical services on a number of cruise ships.

Demographics also favor the likes of Liberty Media Corp. and Cablevision Systems Corp., which are among the Leisure Fund's top five holdings. Distillers, such as Allied Domecq PLC, may be better positioned than brewers in the decades ahead, since older people generally prefer spirits over beer. And the No. 1 jewelry buyer is a woman over the age of 45, who is usually buying it for herself, Greenberg said; sales of expensive watches for men are also brisk.