Future retail success depends on retailers staying relevant to their customers.
Future retail success depends on retailers staying relevant to their customers. But, it’s been a long time since any single retailer managed to conquer the Herculean task of being able to attract all types of customer within one format…Martin Hayward, Founder, Hayward Strategy and Futures, argued that perhaps “for a few years during its golden period, Tesco did manage this, attracting old and young, rich and poor, big shops and top-ups to its different formats and sub-brands but this time has passed.”
So with retailers seemingly no longer able to attract all types of customer, where should they focus their efforts in order to drive growth?
Maureen Hinton, Conlumino, pointed out that, at its simplest level the answer to this question is obvious; Millennials should clearly be the focus for retailers given that they will physically be around for a lot longer than those consumers who fall into the ‘Grey Pound’ category, who, because of the point in their lifecycle are on the verge of dying out. As such, it’s retailers such as “River Island, or H&M, that continually keep adapting their proposition to match the current lifestyle and behaviours of their target customer group [that] thrive.”
However, who has the most to spend? David McCorquodale, UK Head of Retail, KPMG, suggested that “with high student debt and house prices being out of reach for first time buyers, it might seem unwise to seek success from the younger generation,” and perhaps it is better instead for retailers to focus attention on winning “the Grey Pound who are living younger longer, are working harder, have the pensions to spend and who have adapted to technology.”
The KPMG/Ipsos Retail Think Tank (RTT) met in April to discuss the future of retail success and whether it is Millennials or the ‘Grey Pound’ that will be the key to driving growth.
Grey Pound – the upsides
Most fundamentally, the Grey Pound is effectively bigger than the ‘Millennial Pound’. Maureen Hinton highlighted that “there are more people aged 65+ in the UK population than 16-24 year olds, so the total spend is much greater; in clothing £6.7bn against £6.1bn.” What’s more, ours is an ageing population which means that UK population over 65 will be 27% of total adult population by 2030meaning this is clearly a hugely significant group for retailers.
In addition, James Knightley, Senior UK Economist, ING, noted that the ‘Silver Surfers’ are more likely to have kept their jobs during the downturn compared to UK youth unemployment which, even now, remains well above the national average (13.7% versus 5.1%). “Add to this, changes to age discrimination legislation which mean more over 65s are also exercising their right to maintain an income and continue working.”
This generation are also far more likely to enjoy generous final salary pension schemes when they retire. James Knightley added “retirees have benefitted from the government’s “triple lock”, resulting in real term increases in the state pension while those in work are only now starting to see incomes rising faster than the cost of living.”
As such, “structural issues in the economy mean that a substantial amount of the country’s wealth is concentrated among the older generation, particularly due to the rise in the value of their homes,” said Martin Newman, CEO, Practicology.
The Grey Pound is not just a bigger representation of the population in actual terms, Jonathan De Mello, Head of Retail Consultancy, Harper Dennis Hobbs, pointed out that “this generation has greater levels of disposable spend and certainly in the short term the ‘Greys’ represent the most considerable untapped opportunity - and retailers would do well to focus more product lines - and marketing - on them specifically.”
But what are the downsides?
However, while there is a strong case not to ignore the ‘Grey-heads’ in the quest for retail growth, the RTT pointed out that there are some disadvantages in focussing too much on this demographic.
The main problem with going after the Silver Surfers; is not an issue of the amount of money they have to spend, but more what they are choosing to spend that money on. Dr Tim Denison, Director of Retail Intelligence, Ipsos Retail Performance, highlighted that “health products and home maintenance are the only two categories in which the senior consumer spends more per person than the average UK household,” which is not going to be a recipe for success for the majority of retailers.
Mike Watkins added that while older consumers may have a bit more cash at the moment, they are often less experimental and can be less open to innovation.
Martin Hayward also noted that “older customers do eventually stop spending and any retailer’s customer pot will be diminished if new younger customers aren’t brought in to replace them. This is currently under debate with Marks and Spencer’s clothing business which many believe to be focussed too much towards the older loyalists at the expense of younger customers who do tend to spend more on fashion.”
However, Maureen Hinton highlighted that targeting the Grey Pound, specifically in clothing is not that easy when you take into consideration the fact that there are essentially two distinct generations in this age group: “the post-war ‘Baby Boomers’ and their parents – and they have very different tastes and styles. The Baby Boomers have been avid consumers since the 1960s, unlike their parents who have a more austere attitude to spending, and therefore tailoring a proposition that satisfies both is a tough challenge.”
So how do retailers win and keep a share of the Grey Pound?
Jonathan De Mello pointed out that “whilst traditional Millennial marketing might not resonate as strongly with the older generations, they certainly do not feel old, or want to be marketed or sold products in a way that makes them feel old…Greys are increasingly technology savvy with nearly 90% shopping online using a laptop, and circa 50% owning and using a tablet for shopping online. Many are also on Facebook and other social media, so the perception that online media cannot reach them is a fallacy.
”Millennials – what are the upsides?
So while there are pros and some cons to putting too much store on the Grey Pound, other RTT members considered the potential boon of focussing on growing share of Millennials spend to drive retail growth.
“Looking at the Millennials, they are having a profoundly disruptive influence on the retail industry,” said David McCorquodale. “The disruption is caused not only by their sheer spending power – they are the biggest generation in history – but also by the way they buy. Only 1% of them are influenced by advertising, but a third consult a blog or peer review before making a purchase.”
In sectors such as fashion and health & beauty, for example, Millennials spend more on themselves than the 65+s. Maureen Hinton pointed to Verdict’s research “which shows 16-24years spend on average £826 per head per annum on clothes while the 65+s spend £565 per annum.”
Yet, according to Mike Watkins, “the most compelling reason for a retailer to capture the lifetime loyalty of Millennials is that in the next 10 to 20 years, female Millennials will become the driver of retail spend…even within consumer goods shopping, women account for 70% of spend and female Millennials will only become more important shoppers in terms of income available to spend. Female Millennials are increasingly promiscuous and they are found in increasing numbers in ‘price driven’ stores. However it’s not all about price as they are willing to pay for what they consider are essentials in their lives.”
Ultimately, retailers need to embrace Millennials in order to grow sales in the next two decades because if they choose not to, then they are at risk of losing the consumers of tomorrow.
But what are the downsides?
In contrast, James Knightley pointed out that “much of the analysis regarding Millennials has focused on their struggles. Burdened by student debt, high housing rents and faced with a more challenging jobs market than many before them, they are less financially secure. Surveys suggest that they have less appetite for marriage and parenthood and are less inclined/able to make major purchases such as a home or a car.” Jonathan De Mello added that many Millennials have also had to rely on their parents (the Greys!) for financial support.
So does it really make sense for retailers to pin their hopes on this demographic in order to drive future growth? David McCorquodale highlighted that “Millennials can be volatile and are likely to shun brands with bad stories…[while] the Silver Surfers come from a generation that have loyalty, adapt slowly to change, like social interaction when shopping and perhaps are tolerable to a drop in standards.”
Yet Tim Denison commented that despite this, “it’s the fast-living, younger shoppers that retailers rely on to keep the tills ringing from the fashion stores through to the value chains. It’s why so much investment is being sunk into providing an omni-channel service that speaks to the digital native and meets their anywhere, anytime, anyhow shopping habits.”
“Millennials demand a seamless shopping experience, whether they interact with a retailer in a digital or physical sense,” according to Jonathan De Mello. “As a result, particularly in the fashion sector, brands have to constantly reinvent themselves in order to maintain growth - or risk falling by the wayside entirely…Nike (running clubs/Nike+), H&M (catwalk videos) and in the UK more recently Mamas & Papas (interactive touchscreens) are retailers actively targeting Millennials - all have sought to integrate digital into the shopping experience, and to ensure that visiting their stores is about more than just buying product.”
So how do retailers win and keep a share of Millennial spend?
Key to this is the “sharing economy” which provides access to products and experiences without the burden of ownership. David McCorquodale highlighted that “Millennials are not necessarily consumers in the same way that their parents are. You only have to look at how they subscribe for music and books rather than buy – they will rent, not own; share, not hire.”
James Knightley added that “in terms of the Millennials’ retail experience, technology is a very important factor in how they shop. The use of price comparisons, the ability to get more product information and a greater focus on reviews means that they are more knowledgeable on products and arguably more demanding.” Therefore, to win with the Millennials, retailers need to use analytics tools to filter the information provided and the show that they are listening because Millennials ultimately feel loyal to a brand if they feel the brand is trying to give them something that adds value to them.
Is it possible to win at both with both generations?
While there are ways of targeting consumers within different generations in order drive growth, the RTT also discussed whether it was possible to reach both Silver Surfers and Millennials.
The good news, according to Martin Newman, is what older customers want may well appeal to younger generations too, and vice versa. For example “new digital and mobile ways of allowing customers to buy from you, or interact with you, are likely to appeal to both ends of the spectrum. Retailers such as John Lewis and N Brown Group, who historically have had large older customer bases, are doing very well at selling via the web and mobile. This demonstrates that it’s not just the younger generation who benefit from the flexibility and choice that multichannel retail can deliver. “
Does age determine spend?
Currently, there is much debate around whether demographic segmentation is in fact relevant anymore. When asked the question at the Retail Business Technology Expo conference last month Dr Nicola Millard, a consumer futurologist at BT, stated that age was now one of the worst means on which to differentiate consumer behaviour.
Martin Hayward added that “in today’s society, age, class, income and even gender are less indicative of behaviours and spending patterns than they have ever been. The old are trying to be young, the ‘poor’ aspire to designer lifestyles.”
As such, Tim Denison suggested that it is “physical and societal events during one’s formative years which create personal values that remain relatively stable through time and which shape our expectations, perspectives on living and behaviour.”
It is these commonalities and shared experiences within generations that are relevant to retail marketers and may help provide some insights into targeting consumers within different generations in order drive future growth.
The RTT concluded that retail growth is not really going to come from focussing on winning share of spend in either the Grey Pound or the Millennials. David McCorquodale noted that “future retail success must lie in being able to adapt to the millennial way whilst making this change appear only an evolution, rather than revolution, to the Silver Surfers...Agility would appear to be the key as the demands of the Millennials change more regularly; and also transfer with ease to the Silver Surfer. This is the area where success can be won or lost.”
But what does future retail success look like? It depends whether you take a long or short term view on growth. Maureen Hinton suggested that while knowing what drives the current Grey Pound is useful in the short term, in the long term this generation will be replaced. Therefore, “understanding Millennials with their digital lifestyles and new attitudes to spending will provide the key to retail spending over the longer term.”
Added to this, Tim Denison commented that while “Millennials may be entering their peak earning years, with GDP per capita growth on the decline and consumer spending slowing, they won’t be as rewarding and loyal a customer-base as their parents were at the same stage in their lives.” Therefore it may well be that it is the generation behind the Millennials with new demands and new traits that hold the key to future retail growth.
So does the question then become focused on Generation Z and maybe even the children of the Millennials, who will no doubt demand, shop, and spend in whole new ways? If this is the case, agility will be even more key and retail success will come from those retailers who adapt to thrive and remain relevant to their customers.
- ENDS -
Note to Editors:
The RTT panellists rely on their depth of personal experience and sector knowledge, and review an exhaustive bank of industry and government datasets including the following:
Members of the RTT are:
The intellectual property within the RTT is jointly owned by KPMG (www.kpmg.co.uk) and Ipsos Retail Performance.
First mentions of the Retail Think Tank should be as follows: the KPMG/Ipsos Retail Think Tank. The abbreviations Retail Think Tank and RTT are acceptable thereafter.
The RTT was founded by KPMG and Ipsos Retail Performance (formerly Synovate) in February 2006. It now meets quarterly to provide authoritative ‘thought leadership’ on matters affecting the retail industry. All outputs are consensual and arrived at by simple majority vote and moderated discussion. Quotes are individually credited. The Retail Think Tank has been created because it is widely accepted that there are so many mixed messages from different data sources that it is difficult to establish with any certainty the true health and status of the sector. The aim of the RTT is to provide the authoritative, credible and most trusted window on what is really happening in retail and to develop thought leadership on the key areas influencing the future of retailing in the UK. Its executive members have been rigorously selected from non-aligned disciplines to highlight issues, propose solutions, learn from the past, signpost the road ahead and put retail into its rightful context within the British social/economic matrix.
For media enquiries please contact:
PR Assistant Manager,
KPMG UK LLP
T: 0207 311 3245
KPMG has launched a state of the art digital platform that enhances your experience and provides improved access to our content and our people, whatever device you are on.