AICEX SUMMARY: The US economy remains consumption-driven, but that consumption is moving to travel, entertainment and health care, and away from clothing and electronics.
- Author: Paula Rosenblum
- Original: http://www.rsrresearch.com/research/retail-s-new-normal-experiences-vs-things
It is becoming almost cliché to say that today’s shopper prefers experiences over things. In advertisements for its “Tiny House” series, HGTV quotes a millennial couple saying “We prefer experiences over things and don’t want all our money invested in our house.” Fade to a photo of the couple standing in front of the Louvre, and then back to their tiny house.
Cliché or not, the data is starting to prove out the statement. The US economy remains consumption-driven, but that consumption is moving to travel, entertainment and health care, and away from clothing and electronics. I’m certainly doing my part, deferring the purchase of a new iPad while taking a trip out to Los Angeles to see Adele (the concert package cost silly money, but was worth every single penny, if you’re wondering) and visit with some friends I hadn’t seen in half a lifetime.
With regard to healthcare, a shift to an “ACA-compliant” group health plan is costing me a wad more in out of pocket expenses, what to speak of my completely uncovered acupuncture and massages. So yeah, I’m doing my part there too, albeit not as happily.
In the face of these seismic shifts, Macy’s is closing 100 stores, Nordstrom has declared it needs to ramp up its already legendary customer experience, and high-end restaurants are turning to Uber Eats to deliver food that used to be only available at a table. Meanwhile, Whole Food Market struggles with its comparable sales.
If you know Miami at all, you know that Michael’s Genuine, whose slogan is “Fresh, Simple, and Pure” (and probably should also say “expensive”) is where the stars come to eat when they’re in town. Lo and behold, you can have Michael’s Genuine food in your home for a delivery charge of $5 through Uber Eats. You can have the experience in the coolness of your home during these hot summer nights. No cooking required.
I can certainly say that before the Zika scare currently chasing tourists away in droves, Miami seemed to have no down-season anymore. Europeans and South Americans come in the summer, and for some unfathomable reason, people from the US Midwest come in the fall (I promise guys: there are nicer places that time of year!), and in winter, the streets are basically impassable with foot and vehicular traffic from everywhere.
What’s a retailer to do? One thing is clear. It’s pretty important to create a reason for people to come to stores. The race to the bottom has been pretty damaging for all retailers, and the obsession with in-store self-service (and the justifications that went along with it) from the early 2000’s still haunts retailers who cut payroll-to-sales ratios to the bone. Sure, there are payroll dollars coming back into stores. For the second straight year we’ve seen Retail Winners in particular adding people at a faster rate than their sales are increasing. But what are they doing with these people? Are they delivering experiences?
Best Buy seemed to do everything right this holiday season, but still took a hit because consumers have all the iPhones they need for now (or so said Hubert Joly). Gap keeps closing stores, but the chain continues to disappoint. Fast fashion chains are proliferating like bunnies, and seem unstoppable.
Ironically, these fast fashion chains are also recognizing another fact of millennial life: the need to do good.
I was reading a piece on (no groans, now) treehugger.com, which reported that Green Peace launched a campaign called Detox Fashion in 2011. The goal is to eliminate hazardous chemicals from manufacturing processes by 2020. It turns out fashion is the second most polluting industry on earth. I’m going to quote from treehugger directly, as the results are stunning and surprising.
“‘Avant-Garde’ companies are ahead of the curve and on track to meet their detox commitments. These companies have banned hazardous chemicals from their production, published wastewater data, and published lists of suppliers. These include Inditex (owner of Zara), H&M, and Benetton.
“‘Evolution Mode’ means the companies are committed to Detox and are making progress with implementation of goals, but need to hurry up to meet the 2020 target. These include C&A, Mango, Valentino, Adidas, Levis, Burberry, Puma, and Primark.
“‘Faux Pas’ companies are failing to meet their commitments and currently heading in the wrong direction. These do not take responsibility for their supply chain’s hazardous chemical pollution. These include Nike (the only brand to fail completely in all three assessed categories), Esprit, Li-Ning, and Limited Brands (supplier for Victoria’s Secret).
“‘Toxic Addicts’ is the category referring to companies that continually refuse to make a commitment to detox.These include Armani, Diesel, D&G, GAP, Hermes, Versace, and Bestseller, among many others.”
In other words, most of the more advanced companies are in the Fast Fashion category, and those generally who are behind, are “luxe,” with Gap (not luxe!) considered a “Toxic Addict.” Perhaps the hyper-rich buying from Armani, Hermes and Versace are playing Louis XV (apres moi, le deluge) and just don’t care, but can Gap really afford to be so cavalier on this matter? Is Fast Fashion looking ahead to a time when price just isn’t enough? Are they playing the Karma card?
It’s not a stretch to say that feeling good about where you shop is an experience as much as visiting the Louvre.
This is the long way round saying once again – retailers must transform themselves from 20th century to 21stcentury models: from self-service to experiential, from cost containment masters to good world community neighbors.
I spend a lot of time talking about the generational shift within the retail enterprise. It’s time we recognize this generational shift is taking over the industry both inside and out. And it’s time to change. The 20th century model of operational efficiencies and low price at all costs is dead. Even Amazon will hit a wall if continued reports of poor labor practices don’t stop hitting the news (right or wrong).
This is painful, but it’s going to lead us to a better place, I think. But the first step is really recognizing that it’s time to change. It really is.