Generation Y – also known as Millennials – holds tremendous purchasing power with more than 80 million consumers ages 18 to 30. It’s a demographic retailers are finding difficult to understand and to consistently capture.
This group is fundamentally different than the two generations before it. A recent report by NPD Group found that Millennials made more than 5 billion shopping visits last year. Roughly 28% of those visits were to mass merchants, 8% in apparel stores and 5% in national chains.
The demographic is harder to convert, with just 57% of the shopping trips resulting in a purchase. Baby Boomers, in comparison, have a 69% conversion rate, according to NPD.
A group of eight divisional merchandising managers (DMM) at Walmart U.S. were recently asked by The City Wire how the Millennial generation is shaping their future business plans. The management team spoke at a retail conference held in Fayetteville on Oct. 30.
“My team has dug into this, and I personally can’t see what this group is doing. There are great differences between the oldest and youngest in this generation. I understand them until they get to be about 27 with regard to how they shop and what they do,” Scott Huff, general merchandising manager for consumables.
He said the group is important to Wal-Mart, but like most retailers they are somewhat perplexed by demographic.
One area that Wal-Mart hopes to win influence with Millennials is in electronics.
“This is one of the important avenues in our business – how do we change what we sell to the customer and how we relate to the customer. How do we have the product and assortment for them, without changing who we are?” said Kevin Pate, DMM of consumer electronics.
He said Wal-Mart must stay fundamental to its business model — low price and wide assortment, which is not necessarily they way Millennials want to shop.
Perhaps more than any other generation, quality and personalization are important to the Millennials. They are content to have less items of higher quality than an excess of mediocre or average products.
Millennials would do without other things to be able to afford the latest version of the iPhone, even though they could get other brands of smart phones cheaper, according to industry analysts. Through money could be short, they prefer to pay more for the brands they want and love.
“Our ability to be willing to change and be nimble enough to follow them is challenging. As we dig into that, the way we coordinate between Walmart.com and our stores needs to become more cohesive, so we can be one Wal-Mart to the customer.” Pate said.
“They have grown up in time where they could always pause live TV, so their expectations are much, much higher on us to be cohesive and truly one Wal-Mart. If we can’t figure out how they want to shop, then we are going to find ourselves challenged,” he said.
Latriece Watkins, DMM of alcoholic beverages, said an interesting aspect she has witnessed from the Millennials is the impact they have had on flavor profiles in beer.
“I grew up drinking Kool-aid as a kid and they like flavored coffee and craft beer,” she said.
Watkins said roughly two years ago beer makers were tired of losing share to wine and spirits with sweeter flavor profiles. She said this is when they began to innovate with more flavored beer such as hard lemonade and seasonal brews.
The Millennials’ desire for local and regional craft beers is also shaking up the sector among the largest traditional beer manufacturers, according to NDP Group. Watkins said Wal-Mart has traditionally sold beer and wine in the back of the store, but Millennials see that as inconvenient, so they began making other choices for that product. When the retailer moved the adult beverages out front, Watkins said they noticed more beer and wine sales.
“When they are in the store getting their other items, if they see the beer, they buy it. We continue to watch the Millennial’s behavior and try to accommodate and communicate with them in the manner they prefer,” Watkins said.
Huff said retailers have to connect early with Millennials and be a brand that they want, adding that “our Walmart on (the University of Arkansas) campus is one move in that direction.”
Heather Mayo, vice president of grocery for Sam’s Club, said they are working to engage Millennials in conversation, knowing this demographic wants to be spoken to.
“For us it’s streamlining that experience online, giving them access to the products they want online or in the club and to customize the member experience. We are also working to reach them in the area of social responsibility which resonates with this demographic,” Mayo said.
Joe Grady, DMM of candy and impulse buying, said trust is a big deal with Millennials.
“We and all retailers have to work at establishing that trust factor, which involves, authenticity,” he said. “They want to know, ‘How do I trust you as corporation?’ or ‘How do I trust you to do the socially responsible thing?’ And most importantly, ‘How do I trust you to do the things that are right for me?’” Grady concluded.
While Millennials are an important part of the retailing future, economist Kathy Deck said the group is unique in many ways, particularly from an economic view. Deck is the director for the Center for Business and Economic Research at the University of Arkansas and spoke at the recent retail conference.
She said the demographic is fundamentally different because of the Great Recession and soaring student loan debt. Deck said Millennials invested in college education at record high prices but when it came time to get a job, they faced high unemployment rates that forced many into part-time, lower wage jobs that continue to shape their economic future.
As a cohort they are moving into life stages much slower than previous generations –later to form households, marry and have children. Many prefer to rent because servicing their student loan debt is like a mortgage and is not dischargeable by bankruptcy. Deck said this cohort will have a much tougher time building wealth than their parents and grandparents given the $1 trillion owed in student loan debt and their inability to secure higher paying jobs during the lengthy economic recovery.
Huff said Wal-Mart realizes there is a generational shift going on and it’s clearly on their radar.
Walmart U.S. Chief Merchandising Officer Duncan Mac Naughton said at the end of the day he liked “the notion that we are all part of Generation C – constantly connected. The Millennials are an important group and it’s not too late for us to be there for them.”