Riding the Gen Y Wave
Gen Y is coming and it will reshape retail in America.
Gen Y is defined as those born between 1985 and 2010. There are over 110 million of them. That is almost 50% larger than the baby boomers (born 1945 to 1965) and 66% larger than Gen X (born 1965 to 1985). They are spending on average $110/day compared to the boomers $64/day (down from $98/day in 2008). Gen Y's average age is 20 years old. They haven't even entered the truly acquisitive years (houses, cars, children, investments). In another 5 years or so, they will be the dominant factor in retailing.
So what, if anything, should retailers be doing today to be prepared to take advantage of these statistics?
Here are some key points to consider about Gen Y:
- The aggregate market will be huge, roughly 50% larger than the boomers. But there will be less individual discretionary income. As Gen Y ages, they will face a tough job market. With Gen X being almost half the size of Gen Y, every job that opens up as a Gen-Xer moves up or out will have almost 2 applicants, suggesting high chronic unemployment. Additionally, subsidizing the boomers on Social Security/Medicare and servicing our monstrous national debt will surely dictate high personal tax levels. Shopping for value won't be a trend, it will be a necessity.
- They will age and their needs and tastes will change over time. Individuals want and buy different categories as they age. There's a great description of what this means to retailers and category managers in a book by Ken Gronbach titled "The Age Curve" which describes how, in the 1980's, Honda motorcycles exploded in sales and demand outstripped supply for several years. Then, in a very short period of time, demand evaporated. It turns out that the primary customer for these bikes were males in their early twenties (the average age of the boomers). It also turns out that the average age (at that time at least) for males to get married was 24 years old. Guess what the first thing that the average male gets rid of when he gets married? Right, his motorcycle. All the price reductions and promotional advertising can't sell when the largest customer segment ages out of the core market. (PS the average age of Gen Y is 20)
- They will buy based on individual (vs. mass) tastes. Look at the products they are making successful today - iPods with their personal play lists, iPhones with the option for over 100,000 apps, DVRs to record their favorite programs so they can watch what they want when they want. As they age, this personal specificity will impact more and more categories. Sales will be driven by specific, and very diffuse, individual needs and wants. Mass merchandising for all but the most basic commodities will become an oxymoron.
- They will be wired. Studies show that over 90% of Gen Y subscribe to one or more of the Social Media channels. Another study shows that if the subscribers to Facebook were a nation, it would have the third largest population in the world. Most importantly, a survey of Social Media users (see first statistic) shows that 74% trust peer reviews of a product, while only 14% trust traditional advertising.
- They will (probably) be socially and environmentally conscious. This is a qualified statement because, while the boomers professed to be environmentally focused, they also drove the sale of mini-vans and SUVs to unprecedented heights. Each generation ages differently in subtle ways. This one may actually walk the talk.
So what are some practical first steps?
- As a general rule, pay attention to what they are paying attention to. For instance, the "Fast and Furious" movie series, with its tricked-out cars was a huge smash hit in this age group. Toyota and Nissan are already producing cars that emulate the style of these cars.
- Review each merchandise category and identify the primary age of the core customer. Link these ages to the average age of Gen Y. Right now, that average age is moving into the early twenties. If you have categories whose core customers are in this age group (like motorcycles), focus on and highlight them in terms of placement, assortment, and inventory investment. Also look at categories where there is opportunity to extend the assortment to appeal to this customer. This is where the money is. Make this core market age analysis an integral part of your assortment planning.
- If you are not already, start working on localizing your offering. Macy's and Wal Mart have recognized the need to do this and have launched major initiatives to put it in place. Anything you do to enhance your ability to micro-market will pay off handsomely in the future.
- Get wired. A web site goes without saying. If you have not begun to build a Social Media presence, start. If you are already investing in this medium, make this a major part of your marketing efforts. This is obviously a new and very dynamic channel, but it is the future.
- Take a hard look at "green" and "sustainability" initiatives. This can be as simple as replacing plastic bags with paper or canvas. It can be as complex as integrating green products into your assortments. It should, as a minimum, be part of your brand message, but only if it is demonstrated.
As the saying goes "change is inevitable, success is optional". As Gen Y matures, it will take over retailing. The changes will be profound. Some are predictable, many are not. Now is the time to start focusing on this coming wave.
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