Regardless of what brands and retailers have done in the past, be they small or big, personalization is critical to having meaningful dialogues that appeal to consumers, particularly Gen Z.”
Achieving Customer CentricityAcross Generations:Thriving in the OmnichannelRevolution
Consumers are increasingly integrating e-commerce into their lives. The percentage of total U.S. retail sales generated online grew to 21% in 2020, up five percentage points from 2019, our Checkout data shows.
In this ever more omnichannel landscape, competitors are only one click away and switching costs are low for the customer. To keep pace in this environment, brands and retailers must develop new customer engagement strategies to keep their existing customers loyal and win new shoppers — shoppers who have more options than ever before.
The good news is that there are more tools than ever before to enable greater customer centricity. Retailers and brands have the means to tailor their messaging and product offerings to the individual tastes of each customer. Additionally, digital shopping has made it imperative to improve omnichannel capabilities such as buy-online, pick-up-in-store (BOPUS) and curbside pick-up. These fulfillment methods provide consumers even greater flexibility.
Fundamentals such as segmentation, targeting, and positioning will remain, but the speed at which these principles will operate will increase as digital shopping accelerates. To better engage with various customer segments, it’s critical to stay abreast of consumer shopping preferences and how they are evolving.
We used Checkout’s Omnichannel Tracking Panel to take a multigenerational look at the evolution of online purchasing. In exploring this data, several themes emerged. One is that Gen Z has increasingly adopted DTC, while the dot-coms of mass merchant retailers have done well with Millennials. Additionally, the 65+ age group has grown the most in online spending, which means there are new opportunities to reach these customers online.
This article explores the factors that influence cross-generational shopping behavior and provides expert analysis to help brands and retailers effectively adapt to consumer shifts in an increasingly digitally powered market landscape.
DTC Gains Among Gen Z
In 2020, the direct-to-consumer (DTC) channel reached a milestone among younger consumers: 10% of all online sales to 18- to 24-year-olds were in the DTC channel, as shown by our Checkout data. This represented roughly 3.5 percentage point increase versus 2019, making 18 – 24 the fastest-growing age group in terms of DTC adoption.
Sports Industry Advisor Matt Powell says this reflects the acceleration of pre-pandemic trends as DTC is especially suited to meet Gen Z’s desire for unique products. Many DTC brands are smaller than their competitors; they focus on selling unique products, a key preference of Gen Z shoppers. When NPD partner CivicScience asked about their store preferences, 24% of respondents in this age group noted they only or usually shop at small/local businesses, the highest among all age groups. By comparison, across all age groups*, the number who said they only or usually shop at small/local businesses was 15%.
Although bigger brands may face hurdles in establishing themselves as “unique,” many large brands have been able to build a robust DTC presence and use their digital platforms to create personalized offerings suited to the individual tastes of each customer.
In the footwear industry, for instance, major brands that have done well with Gen Z and have a large DTC presence, such as Nike and Adidas, leverage their digital platforms to facilitate personalization, product customization, and the sale of exclusive products. DTC is becoming more important for established brands. In a March 2021 statement, Adidas announced its DTC business is expected to comprise around half of its total sales by 2025. Much of its DTC strategy will center around membership growth facilitated by physical and digital retail assets, Adidas said. Membership growth will create new opportunities to digitally engage with consumers and improve the shopping experience by offering exclusive content and special access to limited releases.
“Regardless of what brands and retailers have done in the past, be they small or big, personalization is critical to having meaningful dialogues that appeal to consumers, particularly Gen Z,” Powell said. “This cohort wants to buy unique products from unique brands, sold through unique retailers. However, this uniqueness should not stray too far from the core. Chasing too many opportunities could weaken the brand and dampen margins. I describe this attitude as, ‘I want to be different, just like my friends.’ Exclusive styles and colors are one way for brands and retailers to leverage this trend, while ensuring they stick to their brand proposition. Personalization and customization are also effective strategies.”
*U.S. adults, 18+, Fielded October 2020 – March 2021
Mass Merchants Appeal to Millennials
In 2020, the mass merchant channel grew fastest among all online shopping channels, our Checkout data shows. In total, the mass merchant channel captured over 10% of total online sales in 2020, up nearly two percentage points compared to the prior year.
The recent success of the channel came as some mass merchants enhanced their delivery and buy-online, pick-up in-store (BOPUS) options toward the end of the last decade. These digital fulfillment options have gained traction recently, especially as consumers have looked for safe and convenient ways to purchase products throughout the COVID-19 period. Between March 2020 and November 2020, 34% of consumers reported using a BOPUS option; 31% said they used a curbside pick-up option, our November 2020 Omnibus Study shows.
Across all age groups, the 25 – 34 and 35 – 44 age segments spend the highest share of their online dollars in the mass merchant channel. Our Checkout data reveals those two age groups spent 11% and 12% of their online dollars, respectively, at the dot-coms of mass merchant retailers. This compares to an average of 10% across all age groups. Millennials have unique shopping needs that are well served by the mass merchant channel. “These shoppers must often adjust to new life stages, including having children and home ownership. While they need to purchase a broad array of new products to facilitate their lifestyles, time is often limited and convenience is critical due to their increased responsibilities,” Home Industry Advisor Joe Derochowski said.
“Mass merchants sell a wide variety of products necessary to keep the home running, such as food, appliances, clothing toys, and more. Additionally, they have enhanced their online fulfillment capabilities to help consumers buy the products that help them navigate their hectic lifestyles,” he added.
With consumers growing even more accustomed to online shopping, retailers with large store footprints must continue to maximize their digital presence by blending online ordering with in-store fulfillment. Many mass merchants have successfully handled this transition — and in doing so, have appealed to the much-coveted Millennial segment. Other retailers with large store footprints, like some department stores, have struggled to effectively transition to the omnichannel landscape.
For retailers with a large store footprint, the goal is to make sure their stores remain an asset as consumers accelerate their adoption of e-commerce. Consider the beauty industry, which struggled throughout 2020 because many consumers used fewer cosmetics during stay-at-home advisories. Despite these challenges, retailers in the beauty space positioned themselves for the future with high-profile partnerships. For example, Ulta and Target partnered on a store-within-a-store concept, as did Sephora and Kohl’s.
“While online sales penetration grew across all categories as brick-and-mortar drove declines, the latter still remains beauty’s largest sales channel and a key factor in its recovery. Leveraging the strength of each channel, recognizing the opportunities of the changed beauty consumer, and owning this transformation are important action items for retailers, brands, and manufacturers as we enter the recovery phase,” said Beauty Industry Advisor Larissa Jensen.
New Opportunities Among Older Shoppers
In the early weeks of the COVID-19 period, it was expected that older shoppers would adapt to e-commerce as it enabled these consumers to buy products while social distancing. Chief Industry Advisor, Marshal Cohen noted, however, that a surprise was that online shopping growth among this group remained strong months after the pandemic began.
Across retail (including grocery and general merchandise) shoppers aged 65+ made 15% of their purchases online between January and October 2020, up from 10% in 2019. Our Checkout data shows this is the fastest-growing group of online spenders.
Now that older shoppers have grown accustomed to online shopping, it will be important to gauge the implications and monitor the extent to which it displaces in-store shopping for this group.
Cohen notes that many in this cohort enjoy the social benefits of in-person shopping. But as barriers to digital adoption lessen and more consumers gain online shopping experience, retailers and brands have new opportunities to inform consumers about their offerings ― regardless of whether the point of purchase is online or in a store.
While 65+ shoppers still spend the highest percentage of their wallet at brick-and-mortar stores compared to other generations, retailers with a large brick-and mortar presence, such as mass merchants, can encourage omnichannel adoption within this group. Our Checkout data shows traction in this regard. In 2020, the 65+ age group shifted online spend toward mass merchants’ dot-coms at the fastest rate of all age groups.
If this momentum continues, retailers can maximize the value of their stores for further engagement. They will be able to create a path forward that augments the benefits of digital for consumers who often prefer to complete their purchases in-store, balancing the benefits of each channel. Additionally, brands must keep an eye on how channel preferences are evolving among their various customer segments to develop partnerships with the retailers who sell their products, while finding continued opportunities for growth.
Channel Implications in the New Normal
As consumers grow more accustomed to online shopping, transitioning to a fully omnichannel environment has become table stakes for brands and retailers. Our ReceiptPal Omnibus survey found since restrictions began, 64% of consumers reported shopping online a little more often or much more often than they did before the pandemic (survey fielded February 25 – March 4, 2021).
This means the competitive landscape will become even more fierce. Successful players will leverage the treasure trove of customer data generated through digital channels to better meet their shoppers’ needs. To compete in this environment, experimentation and deeper knowledge of customers and their preferences are essential to ensuring the digital landscape creates more opportunities than threats.
To develop effective strategies to win new customers, it’s critical for brands and retailers to have a deeper understanding of how their target customers shop across the retail landscape. Once relationships are formed with new customers, personalization and other forms of digital engagement present boundless opportunities to strengthen those ties. This is not an easy transition, but those who adapt will be the big winners in the new normal.
Our Checkout Omnichannel Tracking offers an unprecedented view of what consumers are buying and where — across all traditional retail channels, marketplace platforms, and direct-to-consumer outlets. Based on an industry-leading methodology, it transforms purchase details from receipts into market data and insights.