Changing of the Guard: The Millennials

A generational shift is afoot that’s about to upend the retail landscape.

The root cause of the impending transformation lies in changing demographics. By the decade’s end, millennials, also know as Generation Y, will displace baby boomers as the biggest consumer-spending group in the United States. Broadly defined as the generation born from 1980 to 2000, these “echo boomers” will account for approximately $1.4 trillion in spending by 2020, or about 30% of total retail sales, according to Accenture research.

Based on the most recent projections by the U.S. Census Bureau, millennials over age 25 (the age at which income and household formation typically start to really accelerate) will make up roughly 19% of the U.S. population by 2020. By contrast, the baby boomer generation will fall to below 20% of the population in the next eight years.

For retailers, understanding a fundamental aspect of millennial consumers will become crucial to earning their dollars: They are digital natives whose lives have been shaped by technology — from smartphones and e-commerce to social networks — that has rapidly, and unprecedentedly, transformed how consumers live and shop.

As a result, millennials are leading the trend of fast adoption far faster than anybody would think and also influencing older generations’ shopping habits, according to Renato Scaff, executive partner of Accenture’s retail practice and co-author of the Accenture report, “Who are the millennial shoppers? And what do they really want?”

“Whereas radio took more than 30 years to earn a 50% consumer adoption rate, mobile phones took only 15 years to reach the same level, and social media a mere 3.5 years,” noted the Accenture report.

These tech-savvy consumers are hankering for digitally enhanced, personalized retail experiences that anticipate their wants and needs. At the same time, merchants must rethink their executive ranks to reflect the fluid, technology-driven changes altering how this consumer shops. And they must also address a multiethnic demographic that values peer input more than traditional advertising messages when making purchasing decisions.

For retailers, time is of the essence. “While the boomers are aging and working their way into retirement, millennials are hitting their peak years of spending more and earning more,” Scaff said.

Consequently, retailers would be wise to promptly ask themselves: “How would I change my store and the messaging I do if nobody over 35 came into my store?” said Les Berglass, CEO of executive retail search firm Berglass + Associates, which counts such merchants as Neiman Marcus and ModCloth among its clients.

Earning Gen Y Loyalty

The rap on Generation Y is that loyalty isn’t part of their DNA. Not true, experts say. It’s just that courting this group is an entirely different ballgame since millennials’ notion of privacy is very different than their older shopping cohorts. This selfie-taking generation has come of age in the era of digital footprints, when personal and professional public profiles on such sites as Facebook, Linkedin and Twitter are just a click away.

In turn, “They are comfortable sharing information in exchange for something, and a better [shopping] experience that’s targeted to them,” Scaff said.

This means retailers must leverage granular knowledge of these shoppers who expect exclusive promotions that are informed by their buying preferences and patterns. They’ll even pay more for first dibs on a compelling, targeted offer.

When it comes to fashion purchases, for one, nearly 25% of female millennials said they are willing to pay a higher price to be the first to nab a new product, according to the report, “Social Channels of Influence for the Millennial Generation: A Consumer Study in The Fashion Industry,” from NetBase.

As the number of digital messages retailers pump out “will get ridiculous,” it will become increasingly crucial for merchants to become adept at crafting hyper-local offers, Scaff said.

According to a study by digital marketing firm Acquity Group, when making a purchase, millennials value price more than Generation X, which comes as little surprise for a group that has lived through the biggest economic downturn since the Great Depression.

But these are not your mother’s coupon clippers. This generation skilled at showrooming expects convenient savings perks — such as mobile coupon scanning capabilities — and prices to be the same in store as they are online, according to the Accenture report.

Indeed, more than 95% of millennials surveyed by Accenture said they want their retail brands to “court them actively” with digital coupons. By contrast, “having to print out coupons prior to shopping could be a deal breaker,” the report said.

Retailers attuned to the emergence of the millennial shopper are adjusting their C-suites accordingly. Unlike their shopping predecessors, Gen Y demands a say in the products retailers stock, weighing in on their likes and dislikes via myriad digital touchpoints — from product reviews on sites like Amazon to social networks, be it Facebook, Twitter, Pinterest, Instagram or Vine.

“Merchants are accustomed to being the fortune tellers of the industry,” Berglass said. But these days, “consumers don’t want to be told what they want. They want to partner in the choice of a product because this is a consumer who wants to influence its brands and wants to be heard by the brands they embrace.”

As a result, retailers must recognize that sites like Facebook “are a built-in research vehicle for today’s consumer,” which means breaking from longtime marketing methods, he said.

Historically, a retail buying team determined the merchandise and would then turn to the marketer “to create a story around the products the merchant had selected.” As the marketing person is now armed with unprecedented, real-time insight into consumers’ preferences, “today, the marketing department should be a partner with the merchandising team,” Berglass said.

At the same time, forward-thinking retailers are starting to put social-media savvy millennials in the C-suite.

“If you don’t redefine the composition of your board to include high-level — more contemporary — executives who really understand this consumer and have a deep understanding of the digital side of retail, you’re at a disadvantage,” Berglass said.

Kate Spade CEO Craig Leavitt has gotten the message. It’s crucial to give Gen Y executives “decision-making power,” he said during a November conference held by L2, the digital think tank.

Based on the insight of a millennial-aged executive, the fashion retailer/ wholesaler launched Kate Spade Saturday exclusively online last year. The sub-brand targets shoppers five to 10 years younger than Kate Spade’s 25- to 44-year-old target shopper.

Saturday.com debuted with product-focused editorial content integrated seamlessly throughout the site, as well as fans’ tweets and images.

The Medium is the Message

The influence of social media sites is still a moving target, as the popularity of any given network waxes and wanes with the times — Instagram, for example, is currently on the rise.

What’s more, the jury is still out on the networks’ concrete return on investment. One thing has