Memo to retailers - Gen Z loves the store, so you need to as well

Profile picture for user slauchlan By Stuart Lauchlan September 2, 2019
Summary:
Gen Z may be digitally-native and always connected, but that doesn't mean they don't want to browse the store floor.

shoppers

The pursuit of the Gen Z consumer is a primary goal for retailers, but are firms pitching at the wrong part of the omni-channel mix to lure this digitally-native demographic? Recent research suggests that while these shoppers are supposedly inextricably attached to their smartphones and apps, they’re actually big fans of the offline store - and are not as fixated on Amazon as retailers themselves are.

We’ve noted on several occasions a growing realisation among so-called legacy retailers that their store real estate is a massive asset if managed correctly as part of a coherent omni-channel strategy that balances online and offline. Rather than race to move everything online, fuelled by Amazon-envy, learning to ‘love the store’ has been an important development in the turbulent retail sector.

This chimes with Gen Z’s predilections and that matters. Pursuit of Gen Z spenders isn’t just the latest ‘buzzword-compliant’ move by retailers (although if it means that we’ve moved past the inevitable Millennial mantras of recent years, that’s a positive in its own right!).

But the reality is that Gen Z has become an important retail constituency. Recent research by marketing data firm Engagement Labs, suggest that around 40% - and rising - of US shoppers are from a Gen Z demographic. It’s worth noting that dating Gen Z varies depending on which organization is opining, but it’s basically mid-90s through to mid-2010s in terms of date of birth.

So this is a breed of consumer that takes the internet and real-time connectivity for granted. It’s no big deal to them. These are people who’ve never heard the screeching noises of a dial-up modem. Tapping into an app and making a purchase or completing a financial transaction comes naturally. That does mean that retailers need to be on top of the digital part of their omni-channel thinking, but what’s of more interest is the idea that this ‘always on’ generation enjoys the physical shopping experience so much.

What’s equally of note is that this breed of shoppers doesn’t automatically look to Amazon to meet its needs. According to the Future Shopper 2019 report from Wunderman Thompson Commerce, 16-24 year olds aren’t sold on the idea that Amazon provides the best customer experience or service and over half (53%) of Gen Z buyers surveyed prefer to shop in a physical store.

This is a finding that should have learnings for retailers, notes the report:

Amazon may dominate the online shopping experience for most shoppers, but there is an opportunity for brands and retailers to tap into the younger market (16- to-24-year-olds). On a range of issues, these consumers are bucking the trends that attracted previous generations. They are more social, less search-oriented, and less excited about Amazon. They also crave more options in the marketplace, including brand websites and DTC  (direct-to-consumer) experiences. Businesses that can tap into this generational angst may be able to retain these customers as they grow older, influencing their older friends and relatives and becoming more valuable consumers themselves.

In practice 

This is particularly important for retailers with a young target demographic and there are indicators that some have taken it on board, such as Abercrombie & Fitch, where CEO Fran Horowitz says:

We believe in stores and our customers do too. With the majority of our sales occurring in these channels, it is highly relevant, especially to Gen Z which represents our largest target customer base. Research shows that Gen Z visits stores more often than Millennials.

What that’s led to in the case of A&F is an overhaul of the group’s outlets. Around 50% of Hollister stores worldwide have been updated, says Horowitz, while A&F itself lags behind on 10% to date. And the focus is on smaller outlets rather than the mall-based ‘flagship’ stores that the firm built out between 2005 and 2014, but which the CEO now dismisses as being from “a different era”. She explains:

We're evaluating our flagship fleet today. Many are large and outdated. The old model in terms of size, location, build-out and tenor did not make sense for the majority of the remaining flagships. The cost involved to modernize is significant and oftentimes without promise of a return. As we continue to move closer to our customer, our strategy is to open smaller-format, omni-channel locations with shorter and more flexible lease terms that cater to both local and tourist customers alike.

At Guess, CEO Carlos Alberini talks in terms of “our customer centricity initiative and our objective to perfect our omni-channel experience worldwide”, a goal which involves striking the balance between digital and physical investment:

We are also revisiting the entire customer experience. We think that this could include, in addition to all the technological issues and opportunities that we have that we currently don't have, omnichannel and digital capabilities are part of that, but also including the layout of the store. We don't have as many fitting rooms as you would expect considering the kind of activities that we're seeing. So there are a lot of things that we can do to really improve that experience while the customer is in the stores, and even loyalty membership, which is a big opportunity for us. We are seeing great response when we offer customers to join this membership, and we believe that there is an opportunity here to also integrate data analysis with what we do online.

The retailer is implementing Salesforce as part of its omni-channel efforts, which also include, according to Alberini, new applications to improve data capturing, customer profiling and segmentation, predictive modeling, personalized marketing and customer relationship management:

We started looking at the tools that we had and our e-commerce platform is one that is completely designed and maintain in house. And when we look at other opportunities outside, we saw that that Salesforce is definitely among the best in the market today. And it offers things such as a platform that is built for performance; you have a much faster response time.

]We can improve our search algorithms and be significantly more effective with search. They have artificial intelligence recommendations that today we don't have access to. They can do customer group segmentation on personalization, which today has to be sitting on top of our infrastructure to be able to do anything like that. We can improve our visual merchandising complete control over all the price books that we use to run the business.

As part of the mix, Guess has run some Gen Z-centric pilots in a number of stores:

What we are doing now is looking at how we can participate in that lifestyle of that customer and developing product for them for the occasions that the customer may participate in, and some of this is being done through the brand partnerships group. Now, when it comes to the test we have just done, we took the product that was already available. So it's not that that we went there and we said, ‘OK, let's go and design, convenient new products for this test’. We took that the product that was available, but that was more in line with what that customer is looking for. And then we changed the visual presentations, we gave more space to this type of product to get away from some of the other products and changed the whole marketing outside with visuals and images.

The results were very compelling. It's only a limited number of stores that we're talking about and the stores were selected based on the penetration of this type of product for previous sale. So obviously we are going after those areas where we think that there is an alignment with this customer.

That being said, just the key thing here is not different, whether we are talking about the Generation Z customer or the Heritage customer or the Millennial customer, because it's all about capturing data, then taking all that data and analyzing it and doing segmentation and trying to really understand how this customer shops, how they behave, what type of activities they participate in.

My take

Love the stores - and give them some love in terms of updating them. It’s an omni-channel retail learning that we’ve been preaching at diginomica for some time. While we’re inevitably going to be rolling our eyeballs as every marketing presentation in the world over the next few years tells us how important Gen Z customers are, that doesn’t undermine the reality of the situation. And while those customers are still going to be looking to their apps to do business, they also want to browse the shop floors as well.