How Five of the Biggest Consumer Trends Are Impacting the Retail Sector
Retail is undergoing a reinvention as retailers try to meet evolving consumer expectations. Amazon and Walmart are competing furiously to make delivery as fast as possible. Last month Starbucks launched a new store format in Japan. The new store format called Starbucks Now focuses on mobile order and pick up as well as customers that want to grab and go without staying for a while. Unlike most Starbucks locations, Starbucks Now does not have a lot of seating. That is a 180 degree turn from a store format that focused on customers staying for a while and has brought the retailer great success. Lululemon recently opened a 20,000 sq. ft store in Chicago where customers can take high intensity workout classes.
With all the newness in retail it can be difficult to ascertain why brands are going in so many directions. The truth is that consumer wants, needs and tastes are evolving. One trend that is impacting consumer behaviour is the rise of dual income households. With both heads of household working consumers are more strapped for time than ever. That has led consumers to increasingly value convenience. Another trend is health and wellness. Between 2016 and 2018 the global wellness market grew at a rate of 12.8%. Those are just two of the consumer trends that are impacting the retail sector. Read on to learn how those trends as well as how the great recession, a desire for more experiences and a growing focus on social responsibility is changing the retail sector.
1. Convenience. Have you ever thought that there just isn’t enough time in the day? Well you are not the only one. No one seems to have enough time anymore. One of the reasons for this is the rise in dual income families. With both heads of households working there is simply less time to dedicate to household responsibilities. Compounding this effect is the fact that the time spent commuting continues to creep upwards.
On average, globally, people spend two hours everyday, commuting. While you might be able to read ahead to get a leg up once you arrive in the office you can’t do your laundry on the subway. Taking these factors into consideration it is easy to see why many people find it difficult to work, commute, take care of family members and complete household chores. This is fueling the growth of prepared foods in grocery stores, subscription clothing services (so that you don’t have to spend as much time shopping) and meal kit and restaurant delivery services. Currently 33% of consumers globally use meal and restaurant delivery services. 7% use these services weekly. While the number of consumers that use these services weekly is small this number will likely increase over time as consumers become more familiar with the services and the number of options for what is delivered continues to expand.
As a sign of the times, in the second quarter of 2019, Uber reported that its Uber Eats business grew by 53% year over year while its core ride hailing business only grew at 4% year over year. Many other retailers are focusing on this trend including Amazon. Amazon’s take on the store of the future, Amazon Go, which it spent seven years and hundreds of millions of dollars developing, is essentially a convenience store where people can easily grab food and eat on the go.
2. Experiences. More and more people favour experiences over material positions. So much so that the experience economy is expected to reach $8 trillion by 2030. One of the reasons the experience economy is growing so quickly is because people tend to feel happier over time about an experience they have had such as a water rafting trip than the purchase of a material good such as a new sofa. According to Dr. Thomas Gilovich, a professor at Cornell University who has studied the link between money and happiness there is a fairly simple reason for why people favour experiences: “our experiences are a bigger part of ourselves than our material goods.” “You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
Seeing this trend, in 2016, Airbnb launched Airbnb Experiences with 500 experiences which provided customers with the opportunity to take day trips, classes and conduct other activities. The initiative is a way for the company to drive additional growth. Today there are more than 30,000 Airbnb experiences available to customers around the world. Last year Airbnb CEO Brian Chesky said that Airbnb Experiences were growing ten times as fast as Airbnb’s core rental business.
Equinox, provider of high-end fitness clubs, recently launched its Travel Experience service. As part of the service it provides luxury fitness excursions around the world where customers can partake in a host of fitness experiences. One of the experiences includes a trip to Ethiopia that focuses on the history of elite running as well as a mindfulness getaway in India. All trips focus on fitness and lifestyle programming.
3. Health and wellness. The global wellness market is valued at $4.2 trillion which is 5.2% of global economic output. It is comprised of a variety of segments including: personal care and beauty valued at $1.082 trillion, healthy eating, nutrition and weight loss valued at $702.1 billion, wellness tourism valued at $639.4 billion and fitness / mind-body valued at $595.4 billion. Speaking about the trend in health and wellness, Senior Research Fellow, Ophelia Yeung, at the Global Wellness Institute said: “in the last few years, wellness has become a dominant lifestyle value that is profoundly changing consumer behavior.”
Between 2016 and 2018 the global wellness market grew at rate of 12.8%. Retailers such as Kohl’s are trying to capitalize on this trend by focusing on fitness. For example, this March Kohl’s announced a deal with Planet Fitness that will see Planet Fitness gyms located adjacent to 10 Kohl’s stores with the first one opening later on this year. Space in Kohl’s stores will be reduced in order to make room for the Planet Fitness gyms which are expected to take up to 20,000 sq. ft to 25,000 sq. ft. Speaking about the company’s focus on fitness, Michelle Gass, CEO of Khol’s said: “[Active and wellness] has doubled over the course of the last four years. It’s now 20% of our business.” Kohl’s is planning on doubling down on fitness with plans to increase activewear and wellness merchandise, including accessories such as Fitbits by greater than 25% in 160 stores.
4. The recession hangover. Although consumer confidence in the US is high the great rescission hangover continues. Many people who became thriftier during the great recession still have those habits today. Additionally, despite the economic recovery wages have not increased by the same amount. 42% of Americans surveyed decided not to go on vacation during the past year because of the cost.
While millennials are often a source of great focus by marketers and brands in general there is less discussion about the fact that the millennial generation has been particularly hit hard by the great recession. For example, since the mid 1990s, the average net worth of consumers under 35 has declined by 35%. 48% of millennials report that they are living paycheck to paycheck and 41% of millennials say they can’t buy a home. Student debt is another key factor that has impacted discretionary income within this cohort. Millennials’ student debt increased by 160% between 2004 and 2017. All of this means that millennials do not have a lot of money to spend on discretionary items.
So who is benefiting from a thriftier consumer? Discount stores. There are nearly 30,000 dollar stores in the US today versus 20,000 of these stores which existed back in 2011. That is more stores than McDonald’s and Starbucks have combined. Todd Vasos, the CEO of Dollar General has said: “while the economy is doing very well, our core customer continues to struggle because, normally, her expenses outstripped her wage growth.” “Even in a good economy, she is still looking for value and convenience.” With prices at dollar stores 20% to 40% lower than prices of similar items in grocery and drug stores, dollar stores have capitalized on a new class of budget shoppers.
5. Social responsibility. More and more consumers are becoming civic minded and are focusing on social causes such as protecting the environment. For example, 85% of millennials surveyed believe that it is “extremely” or “very” important that companies implement programs to improve the environment. While 80% of Gen Z, 79% of Gen X and 72% of Baby Boomers have the same belief. What environmental issues are top of mind? The top environmental issues that North American consumers surveyed are extremely or very concerned about are: water pollution (68% of those surveyed), use of pesticides (63%), air pollution (61%) packaging and food waste (60%) and water shortages (57%).
The growing focus on social causes is having an impact on the retail industry. According to Nielsen: “corporate responsibility and sustainability strategies may take different shapes around the world, but one thing is clear: consumers are using their spending power to effect the change they want to see.” Brands that combine a great product market fit along with a strong focus on social responsibility are finding success. For example, California based shoe company Allbirds started out with a wool sneaker in 2016. They became a Silicon Valley staple then Allbirds went on to sell one million pairs within two years. Its shoes are made of natural and environmentally friendly materials including eucalyptus tree fibre and merino wool. Tim Brown, Allbird’s Co-Founder has said: “our thought is, if we can put a man on the moon, you should be able to make a T-shirt and a pair of sneakers that are carbon negative or carbon neutral”.
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