By Marshal Cohen, Chief Industry Analyst – Retail, The NPD Group
The death of retail as we now know it is greatly exaggerated. Retail isn’t dying, it’s evolving and doing so out of necessity. The current retail evolution is being driven by a confluence of change. Changing consumer attitudes, behaviors, and demographics; ongoing channel and digital disruptions; and increasing competition for consumer mindshare and dollars are forcing a shift in long-held paradigms – continuing the status quo is no longer an option.
It’s now about customer engagement, not customer acquisition. Rather than a multichannel strategy, the strategy now needs to focus on the customer and finding new ways to deliver the products they want, when they want them, whether online or at a physical location. It’s no longer about brands, big logos, and price promotions, it’s about engaging consumers with experiences, personalization, quality, service, and value.
The traditional retail business model that has stood the test of time over the decades is now transforming at the speed of light. Retailers competing to stay in the game are turning their ecosystems on end, breaking down old-school beliefs, and reinventing themselves. Amidst all of this change, however, is one constant that has been a guiding principle of retail since it began and that is: know thy customer. Those retailers and brands that survive and thrive are those that base their decisions on the needs and wants of their customers; those that know their customers best and act on that knowledge.
Knowing Thy Retail Customer
More than eight years after the Great Recession, the U.S. economy is improving at a slow and steady pace, but the consumer landscape has been fundamentally reshaped. Consumers entered 2017 with more confidence in their financial situation than they have in years, but their attitudes and behaviors around spending have changed.
Even though incomes are improving, real income is still comparable to where it was in 2007 and that is impacting consumer spending decisions. The growth in single-person households has also decreased the number of dual-income households. Healthcare costs are growing exponentially, and student debt is expected to double in the next ten years. Retail sales and overall consumer spending, key drivers of economic growth, are suffering as a result of lackluster income growth and increased expenses. The economy of $18.9 trillion dollars is largely driven by personal consumption expenditures, which accounted for 69 percent of GDP in 2016. For the $1.9 trillion in U.S. retail sales tracked by The NPD Group, growth was less than 1 percent for the year ending December 2016.
When consumers do spend they have a variety of options vying for their dollars, ones that span beyond tangible products. Consumers are exhibiting an interesting shift in spending to the experiential, demonstrating their desire for something more, and something different – like activities, travel, and entertainment. Spending outside of measured consumer goods categories is typically increasing faster than total consumer spending on average.
A Multicultural/Multigenerational Mosaic:
Today’s retail consumers collectively represent a multicultural, multigenerational mosaic. By 2044, the U.S. Census Bureau projects that more than half of all Americans will belong to a minority group, which is any group other than non-Hispanic White alone. By 2060, nearly one in five of the nation’s total population is projected to be foreign born. Overall, Millennials are more diverse than the generations that preceded them, with 44.2 percent being part of a minority race or ethnic group. Even more diverse than Millennials are the youngest Americans: those younger than 5 years old. In 2014, this group became majority-minority for the first time, with 50.2 percent being part of a minority race or ethnic group.
Millennials and Boomers are still the sweet spot demo for many retailers. Millennials have now surpassed Baby Boomers as the nation’s largest living generation and they are coming of age, working, developing careers, and raising families. Some 1.3 million Millennial women gave birth for the first time in 2015 and they now account for the vast majority of annual U.S. births, according to the U.S. Census Bureau.
Baby Boomers, refusing to be pushed aside by the younger generation or ignored by retail, still account for the bulk of consumer spending growth in major products and goods categories, but also disproportionally spend their disposable income on services and experiences instead of products. As Boomers age and retire they are also spending less. More than half of households over the age of 65 are in the bottom 40 percent of income.
To know thy consumer is to also understand that within each of these demographic groups are sub segments that think and behave differently from others in the same group. The needs and wants also vary. Fortunately with the use of data, insights, and analytic solutions, like consumer segmentations, retailers can get to know their customers up close and personal.
Onward and Forward
Whether driven by want or need, consumers will always be in the market for goods and services. Retail, in whatever format —physical or virtual — will continue to exist. Retailers and brands that are in it to win it will recognize the need to rethink the retail experience they provide, and build business models that offer experience, service, and value to their customers and reflect the diversity of generations, life stages, and other influences that make up our world today.