CREJ - Retail Properties Quarterly - February 2017
What have we learned about retailing in the last year? Well, the first quarter of 2016 saw more national retail store closings than any quarter since 2010, according to Chain Store Age; and several national retailers filed for bankruptcy, including Aeropostale, American Apparel, Sports Authority and Radio Shack, among others. The Limited announced it is going to close its remaining 270 stores nationally and in January Macy’s announced it will close more than 70 stores in 2017 and 100 more stores in the next two years. The coming Macy’s closures average over 150,000 square feet each. That’s a lot of very large, vacant retail space hitting the market. What is causing all of this contraction by national retailers? Maybe there is a clue in these statistics. Target’s store sales for third-quarter 2016 were down 6.7 percent, while its e-commerce sales for those same stores was up 26 percent, which are products ordered online and either shipped from or picked up at those stores, according to Retail Dive November 2016. E-commerce across the U.S. more than doubled from 2009 to 2016, accounting for 4.1 to 8.4 percent of all retail sales in those respective years, according to the U.S. Census Bureau. Some sources have e-commerce as high as 12 percent of total U.S. retail sales and its share of total retail sales is escalating annually. The obvious reason for this escalation in e-commerce is the fact that we all now carry at least one device from which we can order anything from anywhere. Which begs the question, do we really need all of those brick-and-mortar stores to visit? The short answer is no. But again, there is more to it, and it begins with the word millennial. I have heard this word more in the last two years than I have in all the rest of my late baby-boomer years. The shopping patterns of the millennial, Generation X and baby boomer generations are all different, and these differences are causing a paradigm shift in how retailing is executed in America today. But first, who makes up these generations: • Baby Boomers – Born between 1946 and 1964, currently aged 53 to 71. • Generation X – Born between 1965 and 1980, currently aged 37 to 52. • Millennials – Born between 1981 and 1997, currently aged 20 to 36. The current retail brick-and-mortar stores were built for baby boomers. We grew up without computers. We saw ads on TV, heard them on the radio or saw them in the newspaper and that drove us to the store to purchase. And as the baby boomers had children and the U.S. population took off, we built more stores to serve that quickly increasing population. Generation X were not born with computer prevalence, but started using them sometime during their education years. Email was a norm. This generation used computers sometimes to research retail purchases, but still went to the store or the mall for most of their purchases. Many millennials, also known as Generation Y, have never known a nondigital age – they get their information and much of their socialization from the internet. All of us have embraced the digital age to varying degrees; all generations are using our smart devices to look up the score of the game, Google some trivia to settle an argument and, absolutely, to purchase retail items online. But the way we use the internet to make purchases does differ somewhat between generations and that is affecting the way retailers must operate today. Baby boomers still have the most disposable income and account for almost 50 percent of retail sales in the US. Two-thirds of us routinely make retail purchases online, but we still want a one-on-one relationship with the retailer and still visit the store routinely. We also like to shop with a coupon. Generation X represents 25 percent of the population nationally, but holds 31 percent of the income. They are in or coming into their prime earning years. Email is the most important channel for communicating with this generation. They respond well to personalized emails tailored to their interests and prior purchases. Loyalty programs are also big with this generation. Gen Xers shop more frequently at stores where they have joined a loyalty program. They window shop and research online then purchase at a store. Generation X will pay for quality. Millennials want a full digital experience from a retailer, but not at the exclusion of the retail store. Millennials will window shop online and will rely on consumer comments more than other generations. When in the store they want to be communicated with by the retailer with online in-store specials. They want to be able to research product availability and price comparison all while strolling the aisles. Millennials are 2.5 times more likely to be influenced by blogs and social networking sites regarding a retailer, according to AdAge. Millennials want a low price. Millennials want a seamless shopping experience across all digital channels of the retailer, so today’s retailers need to be ready to service all points of contact with this generation. They are almost twice as likely to make a retail purchase on their smartphone as other generations, but they are absolutely willing to go pick that item up at the retailer’s store. Millennials make impulse purchases more often than other generations, usually based on peer input. In 2015, the population of millennials in the U.S. overtook the baby boomer population. Generation X population is projected to overtake the baby boomer generation by 2028. The millennial generation continues to grow with young immigrants as the baby boomer generation shrinks from natural causes, according to Pew Research. Millennials are more diverse than any generation with 44.2 percent being part of a minority race or ethnic group, according to the U.S. Census Bureau. In 2015, the metro Denver millennial population was 891,500, representing 24 percent of the population, while the Gen X population was 821,500 and baby boomers’ population was 813,200, according to Metro Denver Econ. Corp 2016. Generation X and baby boomers currently produce the bulk of the income in the national and local economy but, as you can see, the millennials are coming. Retailers must get to know this generation and communicate with them on their terms in order to be successful. The retail models that grew around and where produced by the baby boomers are not going to survive in the fashion that we have known them. The digital and social aspect of retail purchasing will become pervasive in the coming years. The smart existing, oldschool retailers will be smart to hire millennials to help guide them to and through the next generation of retailing in America. It will be interesting to see what the retail landscape looks like in the next 10 years.