In 2016, we have seen major shifts in the retail industry and consumer buying patterns. We’ve seen the largest Internet-based retailer in the world (Amazon) open brick-and-mortar stores, and we have seen “big-box” retailers closing stores. Clark has named just a few:
- Macy’s plans to close about 15% of its locations amid challenging retail environment.
- 150 Sears and Kmart stores are closing in early 2017.
- According to the Dallas Morning News, JCPenny CEO Marvin Ellison said the department store chain plans to close some of its roughly 1,000 stores soon.
- CVS, America’s leading retail pharmacy, plans to close 70 stores early this year.
- Mall-based retailer, The Limited, closed all of its nearly 250 stores across the country on January 8, but will continue to have an online presence.
Shift in Consumer Buying Patterns
With the closing of many department stores and “big-box” retail stores, we see that discount retailers such as T.J. Maxx, Marshalls, and Ross are thriving. Consumers are now realizing that many of the products or goods that they typically shop for in department stores can be found for a cheaper price either online or in discount stores. This shift is being largely influenced by the millennial generation. For retailers who do not fall into the “discount retailer” category, the key to competing is improved store data. This means creating a way to better track customer data in order to provide unique and authentic shopping experiences for each customer.
The Millennial Consumer
According to Forbes, there are eighty million millennials in America alone, and they represent about a fourth of the entire population, with $200 billion in annual buying power. This means that the buying patterns of millennials are having a direct impact on the retail industry and brick and mortar stores.
While millennials are commonly targeted as the “self-entitled” and “lazy” generation, it has been found that they are extremely price sensitive. Meaning, millennials will take the time to search for more affordable options (usually online or by using their smartphone) before making a purchase. Based on a survey performed by Accenture, 41% of respondents said they have practiced “showrooming” – the act of examining merchandise at a nearby retail store and then shopping for it online to find the lowest price.
It’s no question that the millennial generation is very unique. Retailers have struggled to understand the buying patterns and the interests of this generation for quite some time now. Unlike the Baby Boomer or Gen X generations, millennials tend to be less influenced by advertising and promotional content, and care more about the authenticity of a brand. Millennials best connect with people over logos. The fact that millennials are less likely to go for the “brand name” over a cheaper option, is largely impacting the way retailers must market themselves and their brand. The recent closing of Macy’s and JCPenny stores speaks volumes when compared to the popularity these stores held with previous generations.
Specialty Retail Steps Up
Specialty retailers are businesses that focus on specific product categories. It isn’t the product they sell that determines if a company is a specialty store, but rather the breadth of their product offering.
As we see more and more large retail stores closing, we see specialty retail continue to thrive. Brick and mortar retail is becoming less about shopping and more about the customer experience. With the rise of retail technology such as IoT, virtual reality and augmented reality in retail, consumers are entering brick and mortar stores with the expectation that they will walk away with more than just their purchase, but with a valuable and unique shopping experience.
With the generation that values experiences over items now holding such high buying power, retailers have to make an adjustment to their previous selling strategy. Retailers are beginning to take advantage of IoT and artificial intelligence to create a more personalized shopping experience. Specialty retail is thriving because it has been much easier for SMB and specialty retailers to create these personalized experiences, because they are more likely to have repeat customers, making it possible to establish a certain level of customer loyalty. “Big-box” retail stores have a more difficult time creating a unique customer experience, simply because their audience is too large, and too diverse to maintain a valuable relationship with the customer.
For retailers to survive in this age of discount and digital shopping, it is essential that retailers do not just sell goods, but that they sell an experience.