As the summer sun fades and graduating high school seniors scramble to figure out what they need to buy to survive their first year of college (aside from beer and pizza), retailers are eagerly ramping up for an anticipated $54.1 billion in sales — a huge piece of the total expected $83.6 billion total back-to-school pie.
Back-to-college spending, in particular, is expected to increase by 11.5% over last year, according to the National Retail Federation, and as college enrollment continues to grow, it's increasingly important that retailers get back to college right.
Traditionally, brick-and-mortar players like Target, Walmart and J.C. Penney have done well leveraging their physical presence on college campuses, enticing students with a one-stop shop to stock up on dorm room essentials. But with mobile savvy Gen Z heading off to university and Amazon dipping its toes into more categories, back to college strategies are facing new challenges.
And to most retailers, Gen Z is still an enigma.
“People feel like they know millennials. When you hear people talk about Gen Z, it’s a variance on millennials,” Matt Sargent, senior vice president of retail for Frank N. Magid Associates, told Retail Dive. Are retailers wrong to use their millennial playbook on the next crop of students?
Yes and no.
Millennials and Gen Z aren’t from entirely different planets — the generations are both extremely dependent on mobile devices and inclined to browse and buy across a variety of channels, including in stores if there is a special experience — but there are defining features that set the younger generation apart.
Gen Z is generally defined as including people born after 1995 — and for Lee Peterson, executive vice president of brand, strategy and design at WD Partners, it’s a year that changed everything.
"The most amazing thing about Gen Z or anyone born around 1995 and on, is that they've never known a life without those tech companies — Facebook, Google, Apple and Amazon. The way that they think is entirely different than the way that people born before that think."
Executive Vice President of brand, strategy and design, WD Partners
"The most amazing thing about Gen Z or anyone born around 1995 and on, is that they've never known a life without those tech companies — Facebook, Google, Apple and Amazon," he said. "The way that they think is entirely different than the way that people born before that think. Even though, to a certain degree, some of us really get it. Like Jeff Bezos obviously really gets it."
Retailers and brands hoping to appeal to digital natives heading back to college this year need to have strategies that address three key areas: hyperlocalization; instantaneous and innovative delivery; and social media and mobile.
Where and how Gen Z will buy
Back-to-college shopping has changed dramatically over the last few years, with the season itself beginning earlier and ending later. Over 30% of students say they start the shopping process two months before the school year begins, according to data from NRF, and once they get to school, of course come a flurry of returns and new purchases once students figure out what they actually need.
"What's changed for retailers is what happens during the course of that journey, both during and then before. It wasn't too long ago, 10 years ago, we used to try to drive people to stores, that was the goal and I think those days are way, way over," Peterson said. "If you think about the journey, it includes social media, Instagram in particular and Facebook are more powerful than ever. [I]f you get people to come into the stores ahead of time, which is not as powerful as 20 years ago, you still have to think about driving them online, that's where most of the functionality is going to happen."
College students and their families plan to spend an average of $969.88 on back-to-college items this year, up from $888.72 last year, according to an NRF study. Most of that will be spent on apparel and electronics. Households will spend about $229 on electronics, $143 on clothing, $134 on food, $106 on dorm or apartment furnishings, $81 on shoes, $81 on personal care items, $70 on school supplies, $69 on gift cards and $57 on college-branded gear, according to the NRF.
Where is all of this spending power going? Mostly to mass merchants, which 73% of parents and 72% of students cited as the retail environment in which they plan to do the bulk of their shopping, according to Deloitte’s annual back-to-college survey. By comparison, 70% of students said they would shop at online only retailers, 66% at on-campus bookstores and 43% at fast fashion apparel retailers. The survey also found that shoppers are likely to shift their spending from traditional supplies to digital alternatives.
Brick-and-mortar mass merchants like Target are in a good position to win over price-conscious Gen Z spenders, especially considering the retailer’s push this year to open dozens of small format stores on college campuses, many of which opened in July just ahead of the start of the school year.
"Having a physical space and going to a new location or university you’re moving someone into and being able go to that location is something that to some degree benefits brick-and-mortar retailers," Sargent said. "What I’ve seen from Walmart and Target specifically is aggressively trying to cater to that, really trying to make a stake in the college customer."
Retailers that can make stores near college campuses hyperlocalized will do well, he added. "If they do well with younger, affluent, highly-educated individuals, I think they see this as an incredibly important segment to develop loyalty," Sargent said. "It's the same group that is also using Prime, and it's incredibly important to establish a sense of brand loyalty early on. The problem is they tend to lose that customer as they become more in the family ages. That's where we see Target really struggle, is with the millennial parent with children. Because of busy schedules, they’re opting for Amazon delivery."
J.C. Penney this year has also tapped into localizing their stores near college campuses, adding 500, 400-square-foot dorm shops to stores the week of June 5, with a focus on catering to first time college-goers.
"It’s about instantaneous [everything]," Peterson said about what it takes to appeal to the younger generation. As Amazon continues to beef up innovations like free same- or next-day delivery and shipping to college lockers, Gen Z students will seek out retailers that can also provide convenient and speedy delivery.
Options for click and collect are particularly crucial for students that may live in a dorm or a fraternity house and may not be able to receive packages. "Retailers are going to have to figure out how to compete with [Amazon delivery] in a much different way, maybe it's collaboration with someone like UPS who is also doing a lot of good stuff," Peterson said.
Retailers also need to be savvy with "brick and mobile," Shannon Andrick, VP of marketing advancement at Alliance Data card services, told Retail Dive. "What we’ve seen is online is leveraged so we used this brick and mobile strategy. They’re using their phone and navigating themselves through that experience," she said, which is why we’re seeing more retailers offer options for shoppers to buy online and ship to the closest store to their campus.
Social media and mobile
While most shopping itself is likely to still happen in brick-and-mortar mass merchant stores, a lot of browsing and inspiration for shopping will be driven by social media.
"[Members of Gen Z] look to social media and Youtube. They go to social media more for apparel recommendations and lots of retailers amp up their presence on Instagram," Andrick said. "When you think about their dorm room or lifestyle purchases it’s more Youtube and Pinterest."
But Gen Zers aren’t on social media just to browse — they also want to engage. Brands that truly want to connect to Gen Z need to establish a two-way brand partnership, Sargent said. "It's a realization that any one brand isn't smarter than its customers and the best way to react to customers is to let them have input," he said.
"44% of the youngest generation say they’d be interested in submitting ideas for product designs, 42% would participate in an online game for a brand campaign, 38% would attend an event sponsored by a brand and 36% would create digital content for a brand."
IBM Institute of Business Value and the National Retail Federation
Gen Z is incredibly eager to interact with brands and be a part of the creative process that develops and markets products, found a recent study by the IBM Institute of Business Value and the NRF. In fact, 44% of the youngest generation say they’d be interested in submitting ideas for product designs, 42% would participate in an online game for a brand campaign, 38% would attend an event sponsored by a brand and 36% would create digital content for a brand, according to the study.
One way of doing that is relating to young people and crowdsourcing their input on social media.
"Amazon does this beautifully. Reviews are a great example of two-way partnership and transparency. You’re allowing the customer to see what’s problematic instead of typical trajectory is to cover that up and figure out in a closed room how we make that go away," Sargent said.
Having a mobile strategy is key for back-to-college these days, but retailers should be wary to bet too big on mobile apps. According to Magid data, 18-24 year olds have lower app usage than 25-39 year olds, which confirms the firm's hypothesis that young millennials and Gen Zers are less willing to commit to a retailer's mobile app.
But social media and apps aren't everything. Word of mouth is still critically important to relating to Gen Z. For example, Peterson said, "[The rapper] ASAP Rocky does something and creates a conversation and you go look, and by word of mouth it becomes a lot bigger," he said. "Socializing the ideas is more important than the ideas. How do you socialize that?"
"Amazon, the way they create it is like drones, drone towers that will deliver this crazy stuff, trucks that will drive around neighborhoods and have all this stuff. That to me is a similar concept, a conversation that young people will more than ever grab on to. It’s an idea that’s so weird that you have to talk about it," he said.
If there is one takeaway for retailers aiming to appeal to Gen Z for back-to-college, it’s to forget about driving traffic to stores and focus on a strategy that engages shoppers everywhere.