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'Millennials on steroids': How Gen Z is going to change the retail game

(Yahoo Finance Canada)

The death of the retail industry may have been greatly exaggerated – but that doesn't mean the industry isn't currently going through major disruptive and fundamental changes. For this special series, Yahoo Finance Canada will look at how the retail scene is developing, what companies are doing to adapt, and what could come next. Click the image above to see our full coverage of what the future holds for the Canadian and global retail scene.

For years, retailers have been shifting their strategies to focus on how to bring in more millennial customers. Now, they have another generation to worry about.

According to a survey commissioned by American Express Canada and conducted by Nielsen, 51 per cent of retailers say they need to reach out to and better understand Generation Z, the cohort after millennials commonly defined as anyone born between 1997 and roughly 2012.

However, just 25 per cent of those retailers are currently marketing to the younger generation.

“While it is clear retailers’ marketing efforts will likely continue to shift focus to Gen Z, there is a gap to bridge between Gen Z’s unique needs and what retailers are doing,” Kerri-Ann Santaguida, American Express Canada’s vice president of global merchant and network services said in a statement.

“There is an incredible opportunity for retailers who take action today as the influence of this soon-to-be powerhouse generation continues to grow.”

The survey also found an underwhelming number of retailers are investing in marketing that Gen Z finds relatable. For example, the survey says just 15 per cent of retailers have invested in sampling, and only 23 per cent offer unique in-store experiences, “further demonstrating a discrepancy between what Gen Z expects from their shopping experiences.”

(Getty Images)

Marketing to Gen Z is becoming increasingly important for retailers, and not only because big-spending boomers are getting older. The younger generation comes with a unique outlook and different shopping habits. Christian Bourque, executive vice-president and partner at market research firm Leger, describes Gen Z as “like millennials on steroids”, accelerating some of the trends seen with the youngest of the earlier cohort. Expect continued focus on online shopping, but also a rise of smaller, independent stores, and a focus on sustainability, he says.

“It’s not that they’re not spending, but they are being extremely responsible and reasonable with their spend,” Bourque said.

“I believe as we see the younger generation wanting to and knowing they will own less, the product quality and functionality are going to be more important than experiences when it comes to buying.”

According to Leger’s youth study, which surveyed Canadians between the ages of 13 and 34, Gen Z is the first generation that feels they will be worse off than their parents. They are also concerned about the environment, and believe they will both buy and own less going forward.

Bourque also said that loyalty programs will play an outsized role for the new generation. According to the Leger survey, 41 per cent of Gen Z shoppers surveyed ranked loyalty programs as extremely important, compared to 23 per cent for millennials and just 11 per cent for Gen X.

While spending among millennials and Generation Z will continue to increase, it won’t be enough to make up for the declining spending from aging boomers.

A Morgan Stanley analysis found that over a 10-year span, millennials and Gen Z shoppers will boost consumer discretionary spending by 40 basis points, but not enough to offset the decline of the 45-74 age cohort, which spends more than the population average.

“Home improvement, lodging, auto maintenance and food at home are relatively better positioned, while apparel, home furnishings and good away from home are likely to see decelerating growth,” the Morgan Stanley report said.

Apparel will be the most negatively impacted by the ageing population.

“Thus, we advocate owning apparel and footwear companies leered to key Millennial and Gen Z secular themes such as athletic wear, value, strong mobile experience,” the report said.

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