Millennials Set to Rebuild Retail Industry from the Ground Up
Retailers, are you prepared for the millennial effect?
Born roughly between 1980 and 2000, millennials, are poised to cause a tidal shift in the retail industry because of their spending power and unique characteristics that greatly influence how and what they purchase. According to Advertising Age, millennials will spend more than $200 billion annually starting in 2017 and $10 trillion in their lifetimes.
Given millennials’ immense buying power and the fact that there are more than 80 million of them – making their generation larger than Baby Boomers and 20% bigger than Generation X – retailers should consider re-evaluating their business strategies to ensure they align with the preferences of this influential demographic.
Critical to retailers ensuring their business strategies are in sync with millennials is understanding the demographic’s priorities and behaviors. Unlike consumers from previous generations who have shared common characteristics, millennials possess an incredibly unique behavioral profile. Millennials are:
• “NOwners”: Prizing experiences over ownership, they love shopping but see it as a form of entertainment and are often inclined to browse, but not buy.
Smart retailers are turning this to their advantage and offering shoppers a fun experience. For example, H&M’s store in midtown Manhattan has a runway shoppers can walk down wearing their new clothes – they are filmed and the best videos are displayed on storefront screens.
• Tech-savvy: Millennials are glued to their mobile devices and have a strong preference for brands that offer seamless integration between online and offline shopping. According to research from data and analytics company Annalect, 52% of millennials surveyed said that the technology a brand uses is the most important factor when making a purchase, compared with 48% who said brand name is most effective.
• Impatient: With all the world’s stores at their fingertips, millennials prefer not to stand in line or wait for purchases to be delivered. This desire for instant gratification, in fact, drove an uptick in so-called click-and-collect (buy online, pickup in-store) purchases during the U.K.’s holiday shopping period.
Click-and-collect purchasing allows customers to make purchases online and receive a discount when they pick up their purchase at a designated store. Some commentators see retail stores eventually transforming to serve as distribution hubs, with qualified experts on hand to offer advice.
These generation-defining behaviors are largely born out of the technological revolution in which millennials grew up and which is responsible for the generation’s overall penchant for online shopping. And while millennials like shopping online, they still appreciate the brick-and-mortar experience. According to a study by OpinionLab, digitally savvy millennials are the only generation that prefers shopping malls over shopping carts, despite their proclivity for technology.
Attracting millennials to physical stores
However, for retailers to attract millennials to their physical locations, they need to adjust their approach to real estate. To be better aligned with the type of in-store experiences millennials crave, retailers should consider the following factors for their brick-and-mortar establishments:
• Interiors: Renovate and retrofit interiors to make them bright, attractive, esthetically pleasing places to be. Install charging stations, with comfortable seating and WiFi, so shoppers can recharge their mobile devices on the go. Rotate signage frequently to remain fresh, and include self-service kiosks to reduce line waiting times.
• Tenant mix: Have or be close to a wide variety of businesses, including fitness and entertainment providers, so that millennial shoppers can also work out, relax and socialize.
• Pop-ups: Once an oddity, pop-up stores are becoming more common and popular with millennials. They also can afford retailers short-term leases – often lasting just a couple of weeks – that provide new and online stores with a temporary storefront to increase their brand awareness, and deliver the new and differentiated experiences Millennial are seeking.
Because it will take more than an appealing physical space to attract millennials, retailers also need to rethink their marketing and merchandising strategies in order to more effectively target this key age group and should consider:
• Featuring low pricing for quality merchandise as well as consistent pricing across channels – to appeal to Millennials who came of age during the Great Recession. According to a study by The Intelligence Group (TIG), 36% of millennials claim they only make purchases they deem as necessary.
• Telling a cohesive and engaging online story to keep pace with millennial consumer desires. Millennials rely heavily on the Internet and social media for shopping and researching products. While they may ultimately spend a higher share of dollars online compared to other generations, according to a recent Reuters article, many millennials primarily care about what their personal networks think and say about products, and that the retailers they follow have an appealing social presence. In fact, Forbes also reports that 32% of millennials claim they have quit purchasing from brands that have “unacceptable” social practices.
• Offering personalized interactions and consistency across channels to satisfy consumer demands for integrated, seamless and customer-centric shopping experiences. Millennials shop for entertainment. Results from the same TIG study reveal that 50% of millennials say they browse for items regularly without the intention of purchasing. According to a NPD Group report, overall conversion rates are lowest among millennials. To stay ahead, online retailers must provide compelling destinations for shoppers, along with entertaining and memorable shopping experiences.
There’s no denying millennials are transforming retail. And to alleviate FOMO (millennial speak for “Fear Of Missing Out”), retailers must evolve with this demographic – not only the products and prices they want, but also the experience and the speed that they have come to expect.
Doug Hart is a partner in the consumer business practice at BDO. He can be reached at [email protected].
Stuart Eisenberg is the national practice leader of the real estate & construction practice at BDO. He can be reached at [email protected]m. See more here.