If retail was a target-based dart game, then hitting Gen Z would be the bullseye. Not because they have the most spending power or the most stable jobs, but for a variety of factors that make them, if nothing else, a good investment.
Combined with millennials, the two youngest groups are poised to make up roughly 70% of the global population by 2028, according to a report emailed to Retail Dive by Cowen. That's 70% of consumers who are digitally fluent, value price when making purchase decisions and lean on Amazon like a girl with a broken leg.
"Today's modern consumer is savvy," Jeff Fromm, co-author of "Marketing to Gen Z," told Retail Dive in an interview. "They carry a weapon with them and it's not a phone — it's a modern-day Swiss army knife."
The Swiss army knife that has widely become known as the smartphone ensures not only that Gen Z and millennials are more informed than their predecessors, but also that they're partial to sites like Amazon, which give them all the information they need about a product in a short and simple manner.
Cowen's report on the two youngest demographics highlights not only the biggest trends coming down the pipeline, but also who's sitting at the top — and who's not.
Why is it always Amazon?
The perennial top dog — from winning price wars with Walmart to the sheer volume of the Prime membership base — Amazon shows no sign of slowing its dominance with the two youngest consumer groups. Perhaps discouraging for the rest of the retail industry, though not altogether surprising, the e-commerce giant is hugely popular with young shoppers as well as old.
According to Cowen's report, 90% of customers aged 18-54 said Amazon was their preferred shopping channel, or named the company along with other stores. While that covers a rather large age and preference range, the e-tailer also performed well with exclusively young demographics: Almost a quarter (24%) of 18-24 year-olds and roughly the same number (25%) of 25-34 year-olds cited Amazon as their sole preferred channel — almost 10% higher than the amount reported by shoppers aged 45-54 (16%).
"They're bringing fresh and new, which is what we should expect from brands, but they're upping the game on all the other players by doing it rapidly and continuously."
Co-Author of "Marketing to Gen Z"
The reason for Amazon's success is two-fold, according to Fromm. First there's the price check capability, which allows young shoppers with convenience on their mind to make sure they're getting the best deal, wherever they are (Amazon is actually the last place that 30% of 18-24 year-olds check when making an online clothing purchase, per Cowen's data). Then there's the "Amazon effect," caused by Amazon's constant striving to reinvent and improve, which puts other retailers in a bad light.
"They're in startup mode all the time," Fromm said. "They're bringing fresh and new, which is what we should expect from brands, but they're upping the game on all the other players by doing it rapidly and continuously."
Part of the appeal doubtless comes from Amazon's Prime membership, the price of which was recently raised to $119, which offers customers a host of benefits in return for their annual payment. Chief among them is free shipping, which by itself convinces 88% of shoppers to buy on Amazon, but the platform's convenience also lies in the wealth of information users can find on Amazon's website, which means a lot to younger consumers that rely on phones for research even while shopping in stores.
In particular, user reviews have a serious impact on purchase decisions for millennial and Gen Z consumers, according to Cowen's data. Outside of a need or a want, user reviews ranked the highest among 18-24 year-olds for which factors influence their buying habits — and the same trend followed for 25-34 year-olds.
The highest-ranking influences for consumer purchase decisions
|18-24 year-olds||25-34 year-olds|
|A need: 46%||A need: 48%|
|A want: 29%||A want: 33%|
|User reviews: 21%||User reviews: 21%|
Source: Cowen Millennial Tracker Survey
The number of times that customers are making apparel-related purchases on the e-commerce site is also increasing. Cowen's data showed that not only was Amazon the most popular retailer when it came to clothing purchases, but the company was also cited most for where customers were likely to buy footwear, which could mean Amazon's growing stable of private label is paying off. Or that, quite frankly, the e-tailer is just offering more than traditional apparel sellers.
Perhaps even more concerning for retailers, Amazon has the last say in over a quarter of the demographics' clothing purchases. For 18-24 year-olds, 30% check Amazon last before buying online and 25% do the same while shopping in stores; 25-34 year-olds recorded even higher numbers, with 34% checking Amazon last before buying online and 25% checking while at brick-and-mortar retailers.
"Retailers should be well aware of that type of phenomenon," Ray Hartjen, director of content marketing and public relations at RetailNext, told Retail Dive, noting that shoppers frequently check their phones to validate they're getting the best price. "Older shopper generations are learning from younger shopper generations. It's pervasive throughout retail and retail has got to figure out how they're going to communicate their value proposition to their shoppers."
Retailers well-positioned for success
Amazon might be the sun in this metaphorical solar system, but there are several other retailers with the relevancy of, say, moons or planets. It's not for nothing that customers check Amazon's offerings before they make a purchase — they increasingly value price, with over half (58%) of millennials ranking it as the most important quality when shopping for apparel, accessories or footwear. With value-driven shoppers abounding, Cowen expects the benefactors to be largely off-price and deep value retailers, including Burlington Stores, TJX Co., Ross Stores, Walmart and Costco. Indeed, half of 18-35 year-olds surveyed said they had been to an off-price retailer in the past month, a solid 7% above the rest of the population.
Some department stores could also benefit, as more millennials shop in that sector than the rest of the population, per Cowen's data. Kohl's topped the list as the most-shopped department store and Nordstrom is a favorite in that area going forward, likely due to the latter's commitment to customer service and to innovating new store concepts, like the retailer's merchandise-free store and newly-opened men's only store in NYC.
"You cannot keep the department store model of 1975 and have it work through 2025."
Director of Content Marketing and Public Relations at RetailNext
That being said, this data shouldn't be taken as a hint that department stores as a category are due for a comeback. Despite healthy holiday sales, off-price retailers continue to eat away at department store margins and specialty retailers like Sephora and Ulta have stolen share from the once-important beauty section. The success of a given department store will be based more on innovation than anything else, according to Hartjen.
"Department stores like Nordstrom that are trying new things — I think they should be rewarded for it," Hartjen said, noting that not every retailer is making the same efforts toward modernizing the department store concept. "You cannot keep the department store model of 1975 and have it work through 2025."
An acknowledgment of that fact is likely behind Macy's recent acquisition of Story and the slew of e-commerce acquisitions Walmart made last year. But it's also leading to the popularity of youthful, fast-fashion brands and subscription services, which younger consumers over-index on. In the apparel sector in particular, Nike, Adidas, Calvin Klein and Michael Kors have "sizable leads ahead of competitors" when it comes to Gen Z and millennial shoppers, per Cowen's report.
Indeed, Nike is leagues ahead of competitors, leading in the casual and lifestyle apparel category, with Adidas and Under Armour coming in some 30% behind the company. The same holds true for footwear, where Nike captures an impressive share of interest. Aside from speaking to the obvious popularity of athleisure and the booming sneaker market, Gen Z and millennial preferences are also closely tied to speed.
The highest-ranking sportswear brands
|Total population||18-34 year-olds|
|Nike: 48%||Nike: 46%|
|Under Armour: 15%||Under Armour: 15%|
|Adidas: 12%||Adidas: 22%|
Source: Cowen Millennial Tracker Survey
H&M was the top apparel retailer for 18-35 year-olds when shopping for "fashion apparel," with Calvin Klein and Michael Kors close behind, suggesting that retailers which create and release new fashion lines quickly will likely play well with the younger generations. Cowen noted that fast supply chains and carefully-kept inventory will benefit retailers like Nike, Adidas and Ross Stores, but could be hurtful to the likes of Dick's Sporting Goods, Under Armour and Finish Line.
"They are looking for high quality products that they can get quickly," Angie Read, co-author of "Marketing to Gen Z" told Retail Dive, noting that this tendency among younger shoppers could drive more store traffic, as well. "One of the reasons we know [Gen Zers] go into retail is because they can try it on, they can see it, they can make sure they've got the inventory and they can walk out with it right away — it's that immediacy that they're looking for."
The social commerce bug
In many ways, social commerce is in its infancy, but it's nearly impossible to talk about generational differences without touching upon social media. As is to be expected, social platforms are more popular with younger generations, which by default suggests that shopping and brand discovery on social channels are more popular with Gen Z and millennials than with Gen X and baby boomers.
The most distinct differences, per Cowen's study, can be found on Facebook and Instagram. On those platforms, there are about 20% more millennials who follow brands and businesses than users over 35. They also tend to make more purchases on social platforms. Over a third (36% and 35% respectively) of millennials have purchased a product from a brand or a business they discovered on Facebook or Instagram, and mobile commerce itself has grown from a 4% share of total digital commerce dollars in 2010 to a 23% share in 2017.
"As populations get older, as demographic segments get older, it's going to be the norm quickly," Hartjen said of social commerce. "Mobile and social might be rather small now, but it's not going to get smaller. It's only going to get bigger as time goes by."
Shoppers have their favorites on social as well: Beauty and women's apparel were the most popular sectors followed on social media by 18-34 year-olds, suggesting efforts like Sephora's Beauty Insider Community and REI's #OptOutside social campaign are driving more customers to interact with brands on social.
While Pinterest led the pack in terms of influence, Instagram was the only social platform where product purchases were more likely to occur on the discovered brand's website (40%) than on Amazon, the latter of which was the primary place of purchase for Twitter, Pinterest, Facebook and Snapchat.
That bodes well for most marketers, as nearly 70% of brands use Instagram influencers to promote their products. Still, retailers should use care when reaching out to younger generations through social. While Gen Z is keen to interact with brands on social media, they're quick to sniff out inauthentic ones as well, something retailers should watch out for, Read said.
"They will respond well to brand posts that are more conversational — that are much more humanized," Read said of the youngest generation. "They're looking for brands to be real. They don't want to be sold to."
Based on Cowen's results, a misstep on that front can be more than just costly. Chances are that if young shoppers don't like what they see, they won't wait around for a retailer to get it right — they'll just buy it on Amazon.