The retail slump has hit retailers hard. In 2016 alone, several major department stores have described their quarterly sales as the worst since the recession. In fact, according to a study by Green Street, department stores have reported more than a 20% decline in their sales since 2006.
Yet millennials represent over 80 million shoppers and with it harbor a shopping habit of nearly $600 billion with estimated growth to over $1.4 trillion by 2020, according to Accenture. Harnessing this growth is critical and that begins with an understanding of the marketplace and consumer landscape. Whether a brand is targeting the frugal fannies or the luxury shoppers of the world there are some lessons that apply across industries and audiences today.
A Profile of the 2016 Consumer
In order to maintain success across channels and locations, it’s imperative that brands determine the force driving the migration to online retail sales and that begins by defining what today’s consumer values and expects out of their shopping experience.
One trend that has impacted the way retailers appeal to consumers is the growing popularity of “fast fashion.” For example, brands like Zara and Uniqlo offer consumers the look and feel of high fashion, but at a discount price. Millennials in particular, respond well to these brands, as they like to cherry pick where they want their quality products to fit into their overall look, rather than base their wardrobe on them. That being said, on the occasions that consumers do choose to make a high-end purchase, they aren’t immediately turning to the name brand retailers. Rather, they’re beginning their search at discount department stores, like Nordstrom Rack and TJ Maxx, which offer products with significant markdowns.
When Discounts Dominate
Despite the fickle retail climate, these third-party sellers are reporting significant growth and further proving their ability to appeal to today’s consumer. In an effort to keep up, brand names have become a little too eager with their own discounting strategy, putting their margins at risk and contributing to the poor showing in their quarterly results. This strategy has led to a mindset that products do not need to be purchased at full price, because it can easily be assumed that a promotion, discount code or sale is around the corner.
As a result of consumer’s growing expectation for discounts and retailer’s willingness to oblige, the esteem of a brand name has been watered down. Consumers no longer see brands with the same regard as they previously did. The wool that once covered consumer’s eyes is now gone and they are aware that when determining a pricing strategy, brands leave plenty of room for steep discounts. Naturally, this has led them to speculate and, in many occasions, deduce that the original pricing was created for the fools who don’t have the patience to wait for a promotion. Further, many conclude that the price at which they are actually purchasing the product is a more accurate reflection on the quality of the product. The phenomenon described has been defined as “discount fatigue,” and poses brands with the challenge of reclaiming their reputation and defining that they sell so much more than just a product.
Community Over Quantity
Oddly enough in this climate, retailers can take a page from the luxury handbook. While it may be difficult to believe due to the growth of discount culture, the luxury industry is thriving. In fact, Research published by Walker Sands found that 27% of consumers purchased a luxury item on the web within the past year – that’s up 17% from last year and 21% from 2014. Walker Sands goes on to predict that digital luxury goods sales will triple to nearly $80 billion by 2025.
This trend leads to confusion. Why are consumers spending their money at such drastically different price-points but avoiding the middle-of-the-road brand names? The answer isn’t entirely straightforward but the most important factor to consider is that today’s consumer wants to feel that they’re purchasing more than just a product. They want to buy an experience, a lifestyle and a membership to an exclusive like-minded group of people.
Brands like UnderArmour, Lululemon and Nike – while all athletic retailers – are a perfect example of companies that have set out to differentiate themselves from traditional retail. They’ve recognized that millennials aren’t necessarily concerned with quality as much as they want community. This community-driven success transcends modern day retail and has become a catalyst for the growth of brands like SoulCycle and Crossfit. And, with this success emerges a new shopping persona, The Experiential Shopper.
While the LuLus and Nike’s of the world may have an easy path to experiential engagement through sporting activities – it’s a model that can be replicated across industries. Brands of all shapes and sizes can use this strategy to ensure that they’re meeting the expectations of consumers, protecting their brand and driving healthy quarterly growth.
Appealing to Today’s Shopper
In order to appeal to today’s experiential shopper, brands must take a three-fold approach, which naturally begins with a strong understanding of “who” their customer is. This shouldn’t take place in a vacuum, but instead should cover consumer preference both in-store and online. They should understand that every brand has multiple audiences that they need to appeal to and, by providing personalized and contextual touch points for each individual consumer, they can ensure that they’re connecting with their buyers in as granular a manner as possible.
Second, brands need to recognize that discounting is not enough to drive sustainable sales. In fact it’s a cop-out compared to the retailers that are taking the time to understand and engage with their audiences in a meaningful manner. Continued discounting will further drive down quarterly results and will leave brands devoid of the qualities that made them appealing in the first place.
Berkley Bowen is CEO and Founder of Cue Connect