The U.S. smartphone market is shifting, and shifting quickly. Not only has the marketplace become saturated, wireless carriers are talking about ending their subsidy model. Now combine that with only two dominant OS platforms and a lack of product innovation. It all means consumers are faced with less choice and fewer reasons to trade up.
To understand the shifting mobile phone market and find the most promising opportunities for your business, look to our consumer and point-of-sale (POS) retail tracking information. Paired with our analysts’ expert perspectives it delivers unmatched insights into consumers’ purchasing behavior and their mindset. Our U.S. mobile phone market research includes model-level sales information for basic phones, messaging phones, and smartphones, as well as mobile phone accessories.
With these robust data assets and industry expertise we can provide solutions that include market assessment, benchmarking and competitive assessment, retailer and carrier collaboration, sales planning and analysis, and forecasting and production.
Our POS data for mobile accessories has expanded. Coverage now includes all four major U.S. carriers. This unprecedented market view provides the information your go-to-market decisions demand:
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Wireless at Retail Report
Analyze the mobile phone market with quarterly reports that cover where and why consumers acquire mobile phones and how acquisition differs by channel and key retailers. Based on Mobile Phone Track consumer data, this report delivers detail on top-selling devices and the channels/retailers consumers consider most important and why, plus complete demographic profiles of consumers shopping in specific channels and retailers.
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10 Ways Younger and Older Millennials Shop Differently
The retail world is obsessed with Millennials.
It wouldn’t be a normal day if newsletters, tweets, and the media didn’t overflow with headlines on the latest Millennial trend, how to “harness” their alleged power, or how to reach this malleable and unpredictable segment.
Who are these Millennials? Do a quick Google search, and you’ll learn they’re foodies. Social media savants. Selfie experts. Experience seekers. Value hunters. Convenience junkies. Savvy shoppers. They’re “authentic.”
In demographic terms, they’re people between the ages of 18 and 34 who reached young adulthood around the year 2000.
But Millennials don’t like to be stereotyped as Millennials. We get it, Ryan Seacrest—they’re tired of being generalized into a broad demographic box and find the label patronizing. They just want to be treated as unique individuals.
When it comes to the wide-spanning age bracket, they do have a point—the difference between life in your late teens and life in your early 30s is pretty substantial. Do 18-year-old you and 34-year-old you want the same things, behave in the same way, or buy the same stuff?
With this in mind, we decided to divide the group into two smaller segments for study: younger and older Millennials. We set out to learn how these groups differ, both attitudinally and behaviorally, in their retail choices. We learned a lot, like the fact that older Millennials over-index in loyalty apps. And younger Millennials shop more at department stores.
If you’re a retailer or manufacturer looking to better understand the complexities of these highly-coveted sub-segments across the retail and foodservice spaces,
The Gen Y Gold Rush
Before we dive into retail specifics, let’s review an economic reality to set the context: U.S. Millennials haven’t had it so easy. Coming of age during the Great Recession, 13.8 percent of those 18-29 are unemployed or out of the workforce, far above the national jobless rate of 5.1 percent. And they’re a “boomerang” generation—33 percent stay at home with their families and fewer live independently. (Who can blame them? Seven out of 10 college grads from 2014 have a student loan, owing an average of $28,950 per borrower.)
But debt and other deterrents haven’t kept Millennials from buying things.
Any obsession with the Millennial demographic—also known as Gen Y—is with good reason. U.S. Millennials outnumber Baby Boomers by nearly 10 percent, surpassing them as the nation’s largest living generation in 2015, according to the U.S. Census Bureau. They’re estimated to reach $1.4 trillion in annual spending by 2020—roughly one-third of all retail spending. So retailers and manufacturers need Gen Y’s share of wallet to increase their market share. And this dependence will only intensify as Boomers continue to age and the Millennial segment gains purchasing power. Frankly, if you’re a retailer who’s not focused on this budding segment, we’re seriously concerned. (Please call us immediately and we’ll help.)
Given that Millennials are such an expansive, diverse group, our Chief Industry Analyst Marshal Cohen reminds us that there are many ways to divide up this set for study; segmentation by age is just one way to showcase their differentiated spending. But make no mistake about it: age really does matter. As consumers navigate through shifts in life stage, it reflects back in their purchasing behavior.
When we divide the group into two segments (ages 18-24 and 25-34), there are already some major demographic differences to note. For one, older Millennials are more educated and have a higher income, shown by data collected by our partner, CivicScience. But with more than one-third of 18- to 24-year-olds still in college, they can’t be expected to have the same level of education or earning power. Older Millennials are less racially diverse and are primarily white (74 percent compared to 68 percent of young Millennials). A greater percentage of young Gen Yers are single/never married (80 percent compared to 44 percent of older Millennials), fewer are married (only 10 percent compared to 40 percent of older Millennials), and fewer parent a child (10 percent compared to 40 percent of the old Gen Y segment).
The two groups think and behave differently, too. Younger Millennials are more optimistic about the state of our economy. They’re less likely than their older counterparts to think Donald Trump would make a good president, and more likely to see the new “Star Wars” movie. Younger Millennials are more likely to applaud Bernie Sanders’ performance in the first Democratic debate. And they eat granola with a higher frequency than their elder Millennial brethren.
So how do these differences play out on the retail floor? Here are 10 ways the groups differ in their shopping behavior:
1. Young Gen Y Specialize in Beauty
We studied the receipts of 8,766 Millennials through our Checkout TrackingSM service, following the purchases they made during the first half of 2015, both online and offline. This revealed younger Millennials devoted a greater share of spend to specialty beauty retailers compared to the total Gen Y population. The younger set significantly over-indexed at retailers like Lush, meaning they are more likely than the senior Gen Y group to visit a specialty beauty retailer when they need new concealer or mascara.
But there were also some “neutral” beauty brands that earned consistent share of wallet across the Millennial age bracket. Both Gen Y groups devoted about 20 percent share of beauty spend to Bath & Body Works and 22 percent share to Sephora. The only specialty beauty retailers where older Millennials significantly over-indexed compared to their younger comrades were The Body Shop and bareMinerals.
But it’s not all about specialty shops when it comes to cosmetics. In an online poll of 15,031 U.S. adults conducted from January 2014 through January 2015 through our partner CivicScience, we asked respondents where they buy most of their makeup and cosmetics. The result? Millennials do the majority of this shopping (49 percent) at superstores like Walmart, Target, and Costco—a greater share compared to that of the total U.S. adult population (45 percent). And younger Millennials demonstrate a slightly greater affinity for superstore makeup than older Millennials.
When it comes to how Millennials shop for beauty products, their purchasing behavior is pretty consistent throughout the segment, but there are also some differences. Our Shopper Engagement survey fielded in August 2015 showed Millennials old and young are equally likely to browse in store and buy in store (58 percent). Younger Millennials are more likely than older Millennials to browse and buy online (20 percent vs. 17 percent), less likely to browse online and buy in store (14 percent vs. 15 percent), and less likely to browse in store and buy online (8 percent vs. 10 percent).
"With so many retailers and brands trying to court this segment, it becomes very competitive and challenging to win share of younger Millennials’ discretionary, hard-to-come-by spending"
2. Young Millennials Shop More Specialty Apparel
The Millennial segments demonstrated the biggest discrepancy when we looked at share of wallet devoted to specialty apparel stores. Young Gen Yers like shopping in specialty stores for specific items, devoting 3.2 percent share of wallet to this retail channel, compared to older Millennials’ 2.1 percent share and the total adult population’s 1.9 percent share, shown by Checkout Tracking receipt data.
Marshal Cohen thinks reaching younger Millennials requires laser-like focus. “With so many retailers and brands trying to court this segment, it becomes very competitive and challenging to win share of younger Millennials’ discretionary, hard-to-come-by spending”, he explains. Millennials want to shop and play at places that market their products directly to them. If they feel you’re “for real,” or in other words, not only including them, but genuinely speaking directly to them—they will be more inclined to shop with you.
Specialty fashion retailers are the perfect example. We took a deep dive into data on some of these top retailers to see at which specific retailers younger Millennials over-indexed compared to more senior Millennials over a 12-month period. One look at the over-indexing stores on this list, and you’ll see just how these specialty stores fared with the younger Millennial.
Here we see very clearly how young Gen Yers spend a significantly lower share of their apparel spend at children’s retailers (Carter’s and The Children’s Place) compared to the older Millennial segment. The data reflects young Gen Yers’ preference for stores like Hollister and American Eagle over places like Ann Taylor and Banana Republic.
What we found particularly significant was the fact that two of the most neutral apparel retailers—Lululemon and The North Face—earned similar wallet share among Millennials of all ages, demonstrating activewear’s ability to transcend ages 18 to 34.
But Department Stores Aren’t Dead
Given younger Millennials’ affinity for specialty apparel retailers, perhaps we can understand Macy’s decision to mimic this specialty/boutique feel by opening a basement floor dedicated entirely to the younger consumer (Gen Z and young Millennials), only showcasing the brands most relevant to this age group.
But it is important to note that across the entire channel, Millennials of all ages devote a greater share of wallet to department store spend than the rest of the U.S. adult population. And younger Millennials are also more likely than older Millennials to have shopped at department stores. While the younger group is more likely to have shopped at Nordstrom, the older group is more likely to have shopped at Sears.
Interestingly, while younger and older Millennials differ in their likelihood to have shopped at Nordstrom (26 percent vs. 15 percent), the likelihood of the groups to have shopped at Nordstrom Rack, the fashion retailer’s off-price subsidiary, is not as polarizing (25 percent versus 22 percent respectively). Though less significant, younger Millennials are slightly more likely to have shopped at Marshall’s, while both age groups are equally likely to have shopped at TJMaxx.
3. Younger Millennials Are Sportier
Though activewear share of spend is consistent across the Millennial spectrum, budding Millennials are more likely than older ones to have shopped at sporting goods stores (29 percent vs. 20 percent reported to have shopped at one in the past year). The differences were significantly pronounced at REI (49 vs. 16 percent). There were also marked differences at footwear retailers Nike (40 vs. 19 percent) and Finish Line (32 vs. 19 percent).
So does this mean younger Millennials are more active than their older counterparts? Our Sports Industry Analyst Matt Powell shed light on this question. “I’ve been talking a lot about viewing the generational changes on a spectrum (from the oldest Boomer to the youngest Gen Zer), rather than as distinct and dramatic changes,” he explained. For example, Boomers are mostly white, conservative, less technically inclined, lavish, and not particularly focused on health or fitness. In contrast, Gen Z is less white, liberal, tech-reliant, frugal, and very health/fitness focused. And Millennials fit somewhere in between on this spectrum.
“So when we think of changes moving along a spectrum over time, it is logical that younger Millennials behave somewhat differently than older ones, and in this case—have a greater focus on fitness and health,” Matt explains.
That’s not to mention that as older Millennials buy homes and start families, they spend less money on themselves (and less on things like sports equipment), while the younger Gen Yers do not yet have those financial obligations.
4. Younger Millennials Eat Healthier, Cook Less, and Shop Wholesale
When it comes to the food and beverages they order, younger Millennials are more likely than older Millennials to look for benefits they can obtain by eating healthier, seeking items that provide energy, are filling, reduce stress, and build muscle. These are messaging opportunities for building a younger Millennial customer base.
In addition, young Gen Yers are more adventurous than older generations in their food choices, with 47 percent of younger versus 40 percent of older Millennials claiming to choose something new (compared to only 34 percent or less for older generations). And younger Millennials have other considerations when trying something new. For example, convenience is at the top of the list. Items that are quick to order, prepare, and consume with easy portability and little mess satisfy this need.
An analysis of data from CREST®, our flagship restaurant and foodservice information service, found the Millennial segment experienced the greatest decline in restaurant visits of any generation from 2007 to 2014. This decline was greatest among the older Millennial segment (the group more likely to have kids under age 13 in the household). And if you’ve ever been responsible for a child at a restaurant who is having a meltdown or making a concoction out the table condiments, you get it. Not to mention the impact of having more mouths to feed; the relatively cheaper expense of eating at home was the primary reason for the decline in visits among older Millennials. Healthy eating concerns also played an integral role in the decision to eat at home.
Older Millennials are also more into cooking than are younger Millennials, with just over half of the older segment saying they love or like to cook. It may be easier to attract younger Millennials back to restaurants because they are not as tied to cooking at home.
Last month Whole Foods revealed it will open a line of grocery stores specifically targeting the Millennial shopper. These smaller stores will offer curated, limited selections of products at value prices. While research indicates Millennials do like to specialize, our Checkout Tracking receipt data indicates an affinity for wholesale clubs across this segment. When it comes to at-home food purchasing, younger and older Millennials devoted the greatest share of wallet to wholesale clubs Costco and Sam’s Club, and were similarly likely to have shopped at each grocer. Younger Millennials over-indexed at BJ’s and Publix, but under-indexed at Safeway.
"When it comes to accessories, younger Millennials are not the robust market one would think they are..."
5. Young Gen Yers Devote Less Spend to Accessories
Accessories are growing fastest among the Millennial segment. These consumers are responsible for the greatest share of the category’s purchases, with spending up 15 percent from one year ago. Younger Millennials, however, under-index (compared to total Millennials) in the share of wallet they devote to this category. We found this stat surprising, so we asked our Chief Industry Analyst, Marshal Cohen for his thoughts on the trend.
“When it comes to accessories, younger Millennials are not the robust market one would think they are,” Marshal explains. “Traditional thinking has younger Millennials spending more on accessories, as they tend to be more affordably priced than apparel items. But with less discretionary funds, young Millennials need to be very picky about what and when they buy. Spending across a wider scope of ‘necessities’ like phones, data plans, and even food competes for young Millennial spending on experiences—and that means things like accessories will fall short on the priority list for spending.”
6. Older Millennials Use More Loyalty Apps
Older Millennials are more likely than younger Millennials to be a member of a retailer’s loyalty program. But one surprising trend is that older Millennials are more likely than tech-reliant younger Millennials to have at least one retailer’s app downloaded on their mobile device (48 percent vs. 33 percent). The older group is also more likely to frequently use the downloaded app (46 percent often use their app to browse, look for product information, or shop compared to 38 percent of young Millennials). Older Gen Yers substantially over-indexed for use of mobile apps from Target, Walmart, CVS, Dollar General, eBay, Rite-Aid, Best Buy, Gamestop, and Costco.
7. Millennial Youth Need Less Stuff and Shop Less in Store
Younger Millennials are more likely than older Millennials (28 percent vs. 23 percent) to say they have shopped at brick-and-mortar stores less often than last year, primarily because they don’t need to buy as much as they used to (41 percent). This is also a factor of Millennials’ attraction to experiences, and their desire to do more and buy less.
Older Millennials are more likely than younger Millennials to shop less at brick-and-mortars because they cannot afford to shop as much as they used to (32 percent vs. 25 percent)—perhaps a reflection of the financial demands of parenting.
Both groups are similarly likely to have shopped at Amazon and to be members of their loyalty program, though younger Millennials are more likely to be familiar with Amazon as a place to buy consumer electronics. Older Millennials are more likely to have shopped at direct mail/e-commerce sites like eBay.
When it comes to shopping for apparel, younger Millennials are more likely than older Millennials to browse in store and buy in store (62 percent vs. 51 percent), but less likely to browse online and then buy in store (10 percent vs. 16 percent). Younger Millennials are also less likely than older ones to browse in store and buy online (8 percent vs. 14 percent).
8. Younger Gen Yers Are More Adam Levine, Older Are More Metallica
Our BrandLink® solution reports that if you’re looking for a celebrity endorsement that would appeal to Millennials of all ages, B.o.B. and JT are your guys (that’s Bobby Ray Simmons, Jr. and Justin Timberlake to all you non-Millennials). Both would be good fits to target younger Millennials (index 225 and 132 respectively) and older Millennials (index 167 and 137 respectively).
If you want to home in on younger Millennials, Adam Levine and Daniel Radcliffe are good choices (index 138 and 134 respectively), but they could miss the mark for older Millennials.
Only trying to target older Gen Y consumers? Metallica and Guns N’ Roses would fit the bill (index 130 and 121 respectively), but might not have the same recognition, let alone impact, with young Gen Yers.
9. Older Millennials Buy More Kids’ Stuff
Younger Millennials under-indexed compared to the total Millennial segment in child-related categories: baby products and toys. Specifically, older Millennials are more likely to have shopped at Babies R Us, The Children’s Place, Toys R Us, and Party City. This isn’t surprising, since the 18-24 segment is less likely than the 25-34 segment to parent a child. And in today’s day and age, baby photos don’t really start to take over your Facebook or Instagram feeds until you hit your mid-to-late-20s.
The same trend applies to pet products: older gen Yers are more likely than Millennial youngsters to have shopped at pet stores like PetSmart and Petco.
10. Older Millennials Have More Home-Related Expenses
We know it might sound shocking, but younger Millennials also under-indexed in home improvement, appliances, tools, and home textile purchases. Older Millennials are more likely to have shopped at home hardware stores like Home Depot and Lowe’s in addition to home specialty stores like Bed Bath and Beyond, Crate and Barrel, West Elm, and Pottery Barn. But, really—no surprises here. What 20-year-old do you know who is remodeling her new home, buying a fancy KitchenAid, investing in a state-of-the-art power saw, or ordering a new line of linens? Let’s face it, whether you’re in school or starting your first job, it’s all about scrounging up repurposed furniture from older family and friends or simply sticking with mom and dad for a few more years until you get your feet on the ground. And when young Millennials finally do uproot themselves, typically this means moving to an urban environment where there are more jobs and inhabiting smaller, rented, and/or shared homes that require fewer furniture expenses.
Older and Younger Millennials: Two Distinct Segments
In the world of market research, people aged 18-34 are typically grouped into one giant segment for study. But they do not share the same experiences, think, or act the same. Half the group grew up on Britney Spears, the other on Justin Bieber. Some grew up with Facebook in middle school, while the rest didn’t create an account until after having their first child. Moreover, this 16-year span represents a pivotal coming-of-age period, and the differences between the oldest and youngest Millennial can be great, as evidenced by our top 10 list. It’s time to start treating these segments as two distinct groups, to better get to know them and to speak to them directly if we want to earn their precious spending power.
Roughly a quarter of American households now have access to an Amazon Prime account, shown by new research from The NPD Group and CivicScience. This suggests the online retailer’s premium service has altered how consumers shop – just a decade after its launch.
“Some say retail is changing. I say retailing has already changed. And retailers need to catch up,” said Marshal Cohen, NPD’s chief industry analyst.
NPD’s research shows more than 24 percent of U.S. households have at least one Amazon Prime account, one finding of the first major inquiry into Prime’s penetration levels. Amazon does not disclose the number of Prime subscribers or the percentage of homes reached by the service.
The NPD Group conducted a survey of its consumer panel. Its partner company, CivicScience, conducted a similar poll of online consumers. The results of both pieces of research are remarkably similar. See the results below:
Amazon Prime offers free delivery to members who pay an annual fee of $99 a year. Members also gain other perks, most notably access to a library of streaming movies and television shows. The rise of Amazon Prime has led to a surge in free-delivery services by retailers, and it has turned Amazon into a powerhouse in entertainment. (Only Netflix has a larger number of video subscribers.)
“Retailers can no longer ignore the power of membership at Amazon. It is changing the way people buy and their expectations,” Cohen said. “This will cause other retailers to catch up and take a good long look in the mirror to see just how they too must offer more services, fast delivery, and broader assortments. Add in the entertainment component, and retailers will need to look at reinventing themselves even further.”
Perhaps the most interesting figure to come out of the research is that between 30 percent and 32 percent of respondents said they had not heard of Amazon Prime. That suggests the upside potential for the product is still quite high.
“Do we expect it to grow? Yes. The value proposition for Amazon Prime is pretty spectacular from a consumer point of view,” said Don Unser, group president of NPD’s Retail Business Group.
That is also the expectation of Macquarie Research, which earlier this year predicted Amazon Prime membership will reach half of U.S. households by 2020. Macquarie’s estimate for present-day penetration is 20-25 percent. Consumer Intelligence Research Partners estimated U.S. membership in Prime at 44 million as of June 30, 2015, but did not estimate household penetration.
Certainly Amazon is pulling out all the stops to boost membership in Prime. It’s investing millions of dollars in exclusive video series like the pre-teen hit “Annedroids,” Emmy-winner “Transparent,” revenge drama “Hand of God” starring Ron Perlman, and the alternative future sci-fi thriller “The Man in the High Castle.” The online retailer/entertainment giant is also experimenting with discount pricing. Last month it held a one-day sale offering annual Prime membership for $67.
Amazon also took steps recently to limit the sharing of Prime accounts. Although the new rules limit sharing to just two adults in a home, the move appears aimed at preventing people from sharing an account outside of their household, while presumably making it easier to share streaming services within a home.
All of this makes one thing clear: Amazon Prime is part of the family in one out of every four homes in America . . . and growing.
What it means when consumers want to do something, not just buy something
In traditional department stores across America there are comfy chairs set in out-of-the-way places. They’re called “husband chairs.”Usually you’ll find them in women’s departments, where the purpose of the chairs is clear. Older couple enters. The wife shops. And the husband takes a seat and waits. But you’ll find these seats in other departments too — beauty, housewares, furniture . . . most everywhere except sporting goods.
The premise of course is that men hate to shop, but are obliged to visit stores with their wives. It’s an old-fashioned idea, based as much on an outdated vision of gender as an outdated vision of retail.
Your father probably sat in quite a few husband chairs. Your grandson likely never will. Here’s why:
Retailers have come to accept that . . .
- a. people today ain’t what they were in 1965, and
- b. assuming that shopping must always be a tedious chore for half of the population is a recipe for retail disaster.
So the retail industry is bidding adieu to the husband chair, and saying hello to an era where shopping is fun — for everyone.
Welcome to the world of “experiential purchasing.”
Come fly with me
There are numerous definitions of experiential purchasing. Generally it refers to a store in which stuff happens in addition to selling, and shoppers do things besides buying. The idea is that a retailer offers consumers a chance to buy an experience rather than just an object or service. Or to put it another way, the consumer buys a memory.
Air travel is the classic example of the phenomenon.
Back in the day, the flight to and from a vacation was something meant to be experienced. It evoked adventure and glamour. But the idea of air travel as something people want to experience has been consigned to the past by airport security lines, uncomfortable seats, and the disappearance of manners.
But the desire for adventure, for glamour, and for fun hasn’t disappeared. Now retailers of all stripes are finding ways to make the shopping experience as memorable and remarkable as a Pan Am flight in the 1950s.
Consider just a handful of the stores that have become destinations to experience, not just places to spend money:
- Lululemon, the yoga-inspired apparel chain that debuted in 1998, offers yoga classes in its stores, serving as a sort of one-stop community for both seasoned practitioners and novices.
- Macy’s flagship store in New York City’s Herald Square offers fitness classes in conjunction with Nike. And Nike is considering plans to expand the Nike Training Club idea to other retail locations.
- REI, the employee-owned outdoor retailer, is also an outdoor educator. The company offers in-house and in-the-field classes in kayaking, hiking, rock climbing, and more. Competitor Eastern Mountain Sports offers similar programs, while rival Cabela’s organizes hunting and fishing trips.
- Whole Foods and Williams-Sonoma aren’t just places to buy cookware, they’re also places where you can take cooking classes.
- Pirch is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience high-end equipment from manufacturers around the globe.
Are you experienced?
It would be misleading to suggest retailers are leading the experiential purchasing movement, however. Our Shopping Activity Services data shows buying visits fell 9 percent from 2012 to through 2014.
The reasons behind the drop are numerous. But the central issue is that consumers, particularly young adults, are different from the folks of earlier eras.
Since the U.S. financial crisis of 2008, consumers have been driven to make purchases “count.” Americans today take less pride in having stuff, and they take more pride in doing stuff . . . particularly stuff that can be done with friends and family and shared through social media. (Just consider the rise of Tough Mudder races, selfie sticks, and GoPro cameras.)
Just as important, consumers have learned that in a digital economy there’s less of a need to own things, particularly brand-new, expensive things. The sharing economy means when you want to travel you can order a car on demand (Uber, ZipCar), borrow a bike for an hour (Citibike), or nab a place to park at the airport (Just Park, FlightCar).
If you don’t want to move around, you can rent a couch to crash on (Airbnb, Couchsurfing), get a free couch from someone who’s moving (Craigslist), and then rent the perfect entertainment for couch potatoes (Netflix, Amazon On Demand).
Are we there yet?
So how can you sell stuff to folks who prefer not to go shopping and would rather rent than own?
The key, as illustrated by the retail examples above, is to foster a sense of community in an entertaining setting. Or, to put it simply, to help people have fun with friends and family.
Dining in four-star restaurants is the archetype of such activities. High-end meals tend to be both pleasant and memorable. And our data shows fine dining is becoming more popular with people who can afford the experience.
The next step on this path appears to be the arrival of next-gen technologies like virtual-reality headsets and body-scanning measurement systems that turn routine tasks like trying on pants or buying shoes into a fun and futuristic experience.
Until then, you may want to take the kids to a traditional department store and have them sit in the husband chairs. The chairs are a little bit of American history, and they will disappear soon, like wooden ships and buggy whips.
And you can tell the kids that George Washington slept here . . . while Martha shopped.
Smaller-footprint retail offers challenges, opportunities to manufacturers
Retailers are moving into smaller spaces. The so-called “smaller footprint” store is rapidly replacing the “big box” that has dominated much of American retail in recent decades.
The advantages for retailers are obvious -- smaller stores cost less money, use fewer workers, can fit in the fast-growing urban areas where real estate is pricey, and allow for easier pick-up and delivery services.
The advantages for consumers are pretty clear as well -- more locations closer to where folks want to live translates into a faster and more convenient shopping experience.
The advantages for manufacturers? Not so much.
Manufacturers that have grown accustomed to large displays, impressive shelf space and over-the-top product demos are going to find that the one element that makes all those marketing tools possible -- square footage -- is gone.
Smaller manufacturers in particular will feel the squeeze. Companies that already struggle to win shelf space at major retailers will find it exceedingly difficult to get new products placed in brick-and-mortar stores that are already bursting at the seams.
Little stores, virtual warehouses
That’s not to say that retailers won’t sell new products, or even that they’ll offer fewer products. On the contrary, in a world of smaller-footprint stores, retailers will place increased emphasis on assortment by placing an increased emphasis on online shopping.
A retailer with a vibrant online store doesn’t have to cut back on the SKUs, brands or anything else it carries. It just has to “carry” them in an online environment.
By having lots of small-footprint outlets in lots of areas, a retailer can build an extensive system of in-store pickup, easy returns and/or local delivery -- enabling the retailer to offer a much wider assortment than even the big-box stores could hold.
In fact, building a click-and-collect system and/or easy in-store local returns of online purchases could be a major competitive advantage for traditional retailers faced with the massive assortments of online-only behemoths like Amazon.
But who will hold and ship those products that traditional retailers would sell online?
Well, it seems likely that retailers will push manufacturers to bear that cost by functioning as virtual warehouses -- just as manufacturers bear the costs associated with online marketplaces.
The smaller-footprint store is here for the foreseeable future. The biggest of the big boxes are all moving in that direction. Walmart, Target, Staples, Best Buy, Gap et al have been quite vocal about their let’s-get-small intentions since the end of the last recession.
Certainly the trend is not all-encompassing. Warehouse clubs like Costco, Sam’s Club and BJ’s remain committed to big spaces. But warehouse clubs are famous for offering a limited selection. Manufacturers who find themselves squeezed out of shrinking retail stores aren’t likely to find new placements for multiple SKUs at their local members-only warehouse.
So what’s a manufacturer to do?
The best bet is to develop new, more sophisticated partnerships with retailers.
Helping retailers navigate the new headaches caused by smaller formats would be one way to do that.
- For example, workers in small-format stores will need training on how to manage in-store returns of items bought online. Manufacturers have expertise to share in this area.
- Manufacturers that can make it easier for retailers to sell items that aren’t in the store, by offering better technology-based methods of sizing apparel, for example, also stand to win.
Regardless, manufacturers are going to have to fight long, hard and creatively to win a piece of the shrinking shelf space of the smaller-footprint era.
Looking for better ways to gain distribution for your products? Check out this fanciful story about some atypical approaches.
There may not be a word in the English language that carries more subtext, more connotative and emotional weight, than “home.”
We fill the word with significance over the course of our lives. We have a “hometown” that defines us. We “head home for the holidays.” We practice “home improvement,” we work to have a “happy home” life. When we are lost or tired or afraid, every instinct in us yearns to “go home,” or to “phone home” or just to “stay home.”
Another word that is filled with meaning is “connect.” It wasn’t always so. “Connect” has taken on new significance in the modern world. No one seems to fall in love at first sight anymore. But we are filled with joy when we feel “an instant connection.” We describe our friendships as “sharing a connection.” We don’t introduce ourselves anymore. We reach out on social media and ask to “connect” with people.
So what happens when we combine those two words into a phrase -- “connected home” -- that describes an emerging industry of intelligent devices that live with us?
What do we seek in a “connected home”? What are our expectations? What are the emotional states, the human needs that such a phrase speaks to?
Filing for divorce
It seems that what people want in a “connected home” -- and what the industry is selling -- is an intuitive bond between people and the devices in their homes.
And it also seems that the “connected home” is falling short of creating that bond.
Kara Pernice is the managing director of the Nielsen Norman Group, arguably the most influential organization in the world of design and user experience.
In February Pernice published an article about how she had bought a Nest thermostat and experienced exactly such a bond. But over time her “pure love (for the device) morphed into abhorrence.”
Pernice wrote that “things went bad” when the semi-intelligent device let her down “emotionally.”
It’s a fascinating article. And one worth reading in its entirety.
The core of her argument is that rather than answering an emotional need, the device eventually created emotional distress. At issue was that it simply didn’t respond the way a member of a home would.
For example: Pernice lives in Boston. And that city has suffered from an extraordinarily harsh winter this year. The result of being subjected to such conditions is something that all humans understand, but that machines cannot: “... even on days when the thermometer says it’s not that cold, it looks and feels cold,” Pernice wrote. But the programmable thermostat doesn’t respond to subjective states. And turning up the heat with the programmable device is more complex than simple cranking up the heat on a traditional thermostat.
Eventually Pernice decided to get rid of her device. And it’s instructive that the word she used to describe this parting was “divorcing” -- a word generally used to describe the end of a marriage bond.
It’s easy to mock Pernice. A programmable thermostat is, after all, just a machine. It’s unreasonable to expect it be more.
But that’s the point. The promise of the “connected home” is that our lives will be filled with things that are more than machines.
There may not be anyone on earth who thinks more about the future of the “connected home” than Eddie Hold, vice president of The NPD Group’s Connected Intelligence practice. As such, Hold is central to NPD’s new home automation point- of-sale (POS) data and advisory service. That service comprises consumer panel-based reporting, qualitative reports, U.S. point-of-sale data, and unique analysis of the automated home market. Hold read Pernice’s article, and he thinks her reactions are worth noting.
“It’s an interesting concern as we move more into the automated home: these things are supposed to make life easier for us, but it’s very difficult to predict just what an individual may believe is ‘easier’” he said.
More importantly, when consumers feel unable to control a machine, it triggers a visceral contempt and a deep-seated fear. Anyone who has ever seen a Terminator movie knows that.
“It’s the start of machines taking over the world,” Hold joked. “We think they are working for us, but somewhere along the way, they decide they know what is better.”
This sense that either we control our machines completely or risk annihilation is perhaps the great fear of our era. Is there anyone who doesn’t get just a wee bit nervous when the elevator jolts to a stop and folks start making those “open the Pod bay door, Hal” jokes? Is anyone perfectly comfortable with drone war? with driverless trains?
When consumers grew outraged that their voice-activated televisions were actually listening to what people said in their homes, it felt both funny and true. Of course the machines listen! They’re voice-activated!
Interestingly, we have this level of concern even though we are still very, very far away from having machines that are smart enough to hurt us.
There are now more than a half-billion Internet-connected devices in U.S. homes, according to data from The NPD Group. But the overwhelming majority of those devices are PCs, tablets, smartphones, gaming consoles and the like. The technologies in our homes today, although they may evoke fears and inspire sci-fi movies, are not true Artificial Intelligence. They are just machines … albeit with some impressive capabilities. They are based on brute force computing power and sensors. They’re not intelligent. They’re neither sentient nor sapient.
They are machines. And they do not feel the cold. Nor are they capable, yet, of knowing that we feel the cold but wish not to.
And therein is the challenge of building the “connected home.”
Consumers want devices that bond with them on an emotional level. We want the machine to know how we feel and how we wish to feel.
We want, for example, that should we wake one day when we are old and not feel particularly well, that our fitness trackers and body sensors will scan our medical records, review what we ate the night before, and then speak to us through an interface. “Are you OK? Should we call your children? Do you want to go to the doctor? Or do you want to stay here, at home?”
Until then, until we have a connected home that understands the significance of words like “connected” and “home,” we will always be disappointed by the machines in our life.
And perhaps it’s just as well. Because someday soon it’s likely we will have machines with just such capability.
And then we will have to face the fear that a recalcitrant semi-intelligent thermostat only hints at: What will we do if the machines in our homes come to know how we feel, but don’t care?
The particulars of the retail business are always derivative.
The nature of what is sold, and where it’s sold, and at what price, is always derived from the nature of other things.
For example, consider a little black dress.
Its value is never inherent. The whims of fashion play a role. As does the price of the commodities used to make a dress. So too does scarcity, because the rareness of an object generally correlates with its price. So a dress of cotton, worn by a celebrity, and made in limited quantities at a time when the price of cotton is high, will generally cost more than a dress of polyester, made in mass and worn by the masses, at a time when oil is cheap.
But let’s put aside the price of materials, the mysterious nature of fashion-consciousness and trend-following, the rise or fall of labor costs and look at the one factor that overrides all other factors in retail: Transportation.
As long as man has sold things, the act of selling has been dependent upon the transport of goods. Whether you’re talking about ox-driven carts of food, caravans of merchant goods moving across the ancient world, containerized cargo bringing finished goods from the Third World to the First, or digital downloads and cloud-based access to software, nothing is sold unless it can move from Point A to Point B.
So here’s the thing:
The very nature of how things move from Point A to Point B is about to change. And that will change the retail industry every bit as much as did the creation of the Roman merchant fleet, the opening of the Transcontinental Railroad, or the birth of the Interstate Highway system.
Brace yourself for the world of the driverless car.
This article isn’t about the particulars of driverless-car technology. Suffice it to say that Google is already testing autonomous cars, Apple and Tesla might make them soon, Volvo has said it will have them by 2017, and the rest of the world’s automakers are scrambling to catch up. If you want to learn how they’ll work, you can read this simple explainer or this moderately complicated one or you can tackle this 214-page treatment from the Rand Corporation.
Regardless, all you really need to know is that driverless cars are coming. Luddites, nervous politicians and protectionists might be able to slow the arrival of the technology, but driverless cars will be everywhere soon.
So what does that mean for retailers and the companies that sell through retail?
Change. Lots of it.
And it’s coming at the exact right time for the retail industry.
Here’s why: take a look at the chart below.
What the chart shows is that the two channels of retail are on a sort of collision course. Buying visits at brick and mortar stores are falling rapidly, while buying visits online are rising ever higher.
As those two lines grow closer, the retail world is entering an entirely new era with entirely new challenges.
For online, the big question becomes how can retailers possibly deliver all the goods ordered online as the delivery system reaches capacity? And given the increasing importance to online buyers of free delivery, it’s hard to imagine a scenario where online buying visits can continue to grow at such a rate.
For brick and mortar, the question becomes how can any real-world retailer survive when the trend line looks so bleak? What segments can carry on? What segments become nothing more than showrooms for online sales? And what segments will disappear into history just like general stores, five and dimes and record shops?
What’s fascinating to think about, however, is that the one thing that could affect both trend lines -- boosting real-world visits to stores and adding capacity for deliveries from online orders -- is the arrival of the driverless car.
How could robot cars do that?
By altering these four areas of the supplier/retailer/customer world:
Logistics -- It seems reasonable that businesses will adopt autonomous vehicles at a faster rate than consumers. While a parent of small children may be a bit worried about handing over control of a vehicle to a piece of software, businesses won’t have the same level of emotional concern.
For business, the decision to use driverless vehicles will be based largely on costs. And that means that driverless trucks are likely to fill the highways before driverless cars do.
- Look for interstate transport companies, which are struggling with a shortage of skilled drivers, to be early, and widespread, users of the new technology.
- Expect large-scale logistics companies such as DHL, which have the ability to test driverless vehicles inside massive warehouses, port facilities and intermodal yards, thereby reducing the risk to human life while amassing data about the vehicles’ capabilities, to be the standards setters in the industry.
Home Deliveries -- Just a few months ago, it seemed possible that retailers of the future would use airborne drones for delivery. But the recent decision by the FAA seems to have put that idea on hold.
Enter the driverless delivery car. Early reports are that Google hopes to use its driverless vehicles to support a competitor to Amazon Prime’s same-day delivery service. Meanwhile Uber, which has launched a package-delivery service in New York and a food-delivery service in Spain, is opening a testing facility in Pittsburg to build robotic cars.
- Look for a surge in such small-package delivery services -- particularly from retailers who have the resources to buy a fleet of driverless cars or can sign on with companies that can deploy large fleets for hire -- whether that’s Uber, Lyft, UPS or some company not yet in existence.
Errand running -- When you own a car, it tends to sit around a lot. It sits in the garage when you’re at home. It sits in the parking lot when you’re at work. If you bought it on credit, you pay for it all the time, but you only use it part of the time.
Companies like Zipcar have built a business around getting consumers to see the downside of such an arrangement. Why own a car, they ask, when you can simply rent one for the brief periods of time when you’re actually inside a car?
But what if your car was productive without you?
What if, for example, when you went into the office, it went grocery shopping. Then it picked up the dry cleaning. Then it picked up the kids at school, took them for a snack, dropped them at the park and sent you a video of them playing baseball, sounded its horn when playtime was over, got the kids inside, drove back to your office, picked you up, then took everyone home before starting its second job as a pizza-delivery vehicle for the business down the street?
- Look for the rise of the driverless car as employee -- more robot than robot car, doing all the things you can’t do or would prefer not to do.
- Expect employees of brick and mortar stores to spend an increasing amount of time interacting with customers’ vehicles, rather than customers.
- And look for these butler/nanny/assistant cars to cause major congestion on the roads.
Customer service -- Imagine a world where robot cars have made same-day delivery common and where running errands is something that the car does, not you.
That’s a pretty cool world if you’re a consumer. And it’s a pretty cool world if you’re most retailers.
But it’s decidedly less-than-cool if you own a brick-and-mortar store that depends upon impulse buys. Because in a robot-car world it’s possible for a consumer to never, ever enter a retail establishment of any kind. Ever.
So to get customers to actually visit a store, retailers are going to have to offer something more than they do now.
- Look for high-end retailers in particular to use robot cars of their own to pick up their preferred customers and return them home.
- Expect all retailers to begin offering deep discounts, coupons, contests, sales, etc. that are limited to consumers who visit a brick-and-mortar site. And such offers will have to be far superior to those offered by today’s click-and-collect retailers who only need to lure consumers out of the car.
- Look for a rise in retailers who offer a carefully curated “experience” for consumers -- something that changes on a regular basis but that can’t be predicted or easily duplicated, like an edition of a magazine.
- And place your bets on retailers who have adequate space to offer unlimited free parking. Because we’re going to have to put all those driverless cars someplace.
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