Economic indicators suggest consumers are cash-rich, but where’s the retail growth?
Retail has hit a snag in recent years – and especially in recent months. Now, red tags and sale signs dominate the mall. Even high-end retailers have resorted to price matching and vouchers for next-purchase savings. In the fight against Amazon, it seems like everyone has resorted to price-drops in their attempt to increase foot traffic to stores.
Inflation is low. Gas prices are lower. And unemployment rates have lowered. So why isn’t the public shopping in retail stores? At least, like they used to?
The Amazon Effect has hit traditional retail like a freight truck. Lowering prices and accelerating deliveries are popular retailer tactics, but trying to beat Amazon at their own game is a losing battle. While online sales see healthy growth year over year, there’s more to the story than “shoppers are moving online.” It’s critical to understand the new consumer and what they want – and find new opportunities for growth.
The population vs. retail spend problem. Millennials represent the largest generation in the US – they’re just not spending in traditional retail. There are approximately 90 million Millennials in the US, 60 million Gen Xers, and 80 million Boomers. While Millennials make up about 27% of the population, they only account for 10% of retail sales. It’s a big challenge for retailers – for now. By 2020, Millennials will start the shift to take over spending power.
Millennials drive expectations – but who are they really? Most people have the misconception that Millennials (and Millennial behavior) is tied to teens, but “Millennials” (also called Echo Boomers and GenY) are defined as being born between 1980 and 1995 (about 21 to 35 today). Millennials and how they differ from Xers and Boomers gets a lot of coverage – including a shout-out in Meeker’s 2016 Internet Trends Report.
Millennials buck the traditional consumer model of their parents’ generation. They have enhanced expectations, but are apprehensive about purchases. They’d rather rent a house and own a car. They don’t trust ads, but value authenticity. They spend money with fewer brands. They are looking for maximum information and convenience for minimal cost and effort, so they like eCommerce; spending more online per year than any other age group.
Boomer-GenX-Millennial expectations are starting to blur. This is the age of the individual. Not breaking news, but it’s a fundamental shift in how people buy and what they expect. Talking about “Millennials” is becoming less tied to a specific age group in retail, and more about the Millennial mindset. Millennial expectations. All age groups now want to be engaged on a personal level. They want service on their terms. Autonomy. Exclusivity. Authenticity. Efficiency. For example, Boomers have adopted mobile commerce in a big way, with one in four mobile shoppers in the US being over the age of 55, and 80% of them stating that a “fulfill anywhere” purchase is what they want.
Millennials tend to care more about experiences than “stuff.” Millennials may be a penny-pinching bunch when it comes to general retail, but they do spend. In fact, they’re seen as a group that earns to spend. Millennials happily purchase things like Apple devices (viewed more as survival tools than luxury goods) but spend most of their income on “experiences” - restaurants, vacations, and the like. Less disposable income paired with the desire for experiences creates a new type of economy.
Millennials crave an efficient buying culture. They live a fairly minimalist “stuff” existence, compared to the way Boomers-Xers did. A big reason for the depleting emphasis on goods is how accessible things have been for this generation – and not just the Internet. In apparel, fast fashion (think Forever21 and H&M) makes today’s trends accessible for a fraction of the price. Limited spending but desire for experiences has created the sharing culture of Uber, AirBnB and ZipCar - which doesn’t bother a millennial in the way it would many Boomers.
While they want fast and cheap for most merchandise, they are willing to spend on the unique and different. Millennials are special unicorns. If everyone can have it, why pay more?
There’s been a rise in the new-authentic brand, like Filson and Shinola, where the story of the product and the company is the draw. Oddly enough Millennials seem more willing to pay $90 for the indie label, globally conscious T-shirt, than $40 for a department store brand. Rise to things like Etsy for specialty apparel and accessories show that Millennials are willing to wait for things they think are special and different.
What’s Next? While some retailers try to solve slowing growth with fast shipping and promotions, it must be a two-pronged approach. Keeping up with competitive pressure is a piece of the story, but understanding and reaching the changing consumer is critical. Focus on Millennial expectations to snag loyalist from all age groups:
Capitalize on what makes you different or exclusive. Is it your stellar service? Product? Corporate mission?
Make it easy to do business with you – period. Let shoppers buy any way, fulfill anywhere, select from a broad inventory, and do it as speedy as possible.
Don’t bet it all on price or delivery. It’s not how you win in the long-term.
Build trust. Be authentic.
Invest in technology that makes you agile, innovative, and data-driven. You need to keep up with what Millennials want next.