The retail industry has been undergoing dramatic changes in the past few years. The rise of e-commerce has pressured traditionally dominant retailers to adapt or get left behind, while radical new forms of technology have begun making their way into the shopping experience, all of which is changing retail as we know it.
However, more fundamental changes are on the horizon. The retail industry is inherently shaped by the consumers it serves. As consumer demographics in the U.S. begin to shift, and eventually experience major changes in the long-term, the entire retail industry will have to change to more directly serve consumers.
Retail Demographic Trends Creating Change for Retailers
There are a number of demographic changes that will impact the retail industry, and there are 5 that will be particularly impactful, now and in the future.
1 Millennial Parents
Millennial parents are quickly becoming a powerful consumer group in the U.S. According to the National Retail Federation (NRF) Consumer View Spring 2018 report, Millennial parents are typically in their 30s and earn more than the average household. As of early 2018, their collective consumer confidence was up significantly over the past 10 years and a third felt their financial situation was improving year over year. This demographic group is gaining spending power quickly. Retailers will need to be able to capture the attention of Millennial parents who prefer to spend money on experiences, fitness, and nearly $1 trillion on their children.
2 Gen Z Nears an Influential Age
Generation Z, or Gen Z, is the generation younger than Millennials. Born after 1994, this demographic is just starting to become an influential group of spenders, as the oldest Gen Zers are in their early 20s. One of the most remarkable facts about Gen Zers is that 98% prefer to make purchases in stores some or most of the time, according to the NRF. This would seem to be a dramatic reversal from the rise of e-commerce, but Gen Zers’ desire for great retail experiences is clear. In fact, 56% say a fun store experience that prevents them from getting bored is important in their decision on where to make a purchase. Gen Z is quickly becoming influential in the retail sector.
3 Lower Vehicle Ownership Among Younger Generations
Younger generations are buying cars at far lower rates than older generations, according to RoxAnna Sway in Forbes Magazine, executive director of Retail Intel. In fact, car ownership has declined by approximately 30% in the past five years alone, partially due to the rising price of vehicles. However, Millennials spend as much on digital equipment and smartphones every month as older generations did on new car payments. Today’s youth prefer to be digitally connected than to own a vehicle. Plus, ride sharing services such as Uber and Lyft are leading to declining car ownership, as does car-sharing services such as Zipcar. One study from the University of California, Berkeley, showed that one car-sharing vehicle replaces between 9 and 13 personally-owned vehicles. This could present a major issue in the future for brick and mortar retailers, especially those located in the suburbs that are less connected to public transportation. While Gen Z likes shopping in-store, Millennials may be less inclined to do so if getting to a store proves difficult.
4 The Rise of Multi-Generational Homes
One in five families in the U.S. live in a household with more than one generation. Nearly one and ten families in the U.S. lives in a “grandfamily”, where a grandparent is the head of the house. This can make it difficult to predict shopping patterns. When people from different generations are buying products for each other, it goes against what would be expected from the consumer. The traditional business model assuming a nuclear family is far from relevant in today’s world, and retailers must understand this to more accurately predict buying patterns.
5 Shrinking Middle Class Income
According to the Pew Research Center, 61% of adults were in the middle class in 1971, defined as houses with incomes from two-thirds to double the national median, and 50% of adults were middle class in 2015. Today’s middle-class families have less money to spend, especially for discretionary purchases. This trend does come at a time when the luxury class is wealthier than ever – owning 29% of the nation’s income in 1970 and 49% in 2014, more than seven times that of the middle class, according to Pew. Despite this fact, the shrinking of the middle class is still harmful to the retailers who serve them. Discount retailers, warehouse clubs and dollar stores have found the right formula for success in this new reality, and other retailers may have to adopt some of their strategies to sell to a shrinking middle class.
While there are many factors that may have major consequences for the retail industry in the future, the five demographic changes listed above will all make waves in the industry. Demographics inevitably change, and the retail sector as we know it will change too.
The retail industry is inherently shaped by the consumers it serves. Demographic changes are occurring right before our eyes and the retail industry will need to keep its finger on the pulse of society’s changes in order to stay relevant.
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