Companies holding out for a consumer rebound could be waiting for years and find that by the time shoppers do come back, the rules of the game will have changed. That is likely to mean fewer retailers and stores, more e-commerce and mobile shopping — and an entire generation of consumers who are struggling to make ends meet.
“It could be up until 2020, 2025 until people get to a situation where they feel they can spend freely,” said Leon Nicholas, director of retail insights at Kantar Retail. “The debt overhang is so large for the American household that people simply can’t break free from it by changing a few behaviors.”
Were the housing market stronger, people could sell their homes and move to follow jobs or switch to smaller houses and pay down debt, he said.
And Generation Y shoppers — who are coming into their own and range from about 18 to 29 years old — are learning to live in leaner times, relying on their parents and deferring the parenthood and home ownership.
“I think they’re going to consume things differently and they’re going to consume things in a frugal way,” Nicholas said. “They’re probably going to have less credit card debt because they saw what happened to mom and dad.”
Many young adults still depend heavily on mom and dad.
Since spring 2007, the number of doubled-up households — which the Census Bureau defines as a household with someone older than 18 who is not in school and is not the householder or the householder’s partner — grew by 2 million to 21.8 million.
A total of 5.9 million 25- to 34-year-olds lived with their parents this spring. And although these adults had an official poverty rate of 8.4 percent, the Census Bureau said 45.3 percent of them would have qualified as impoverished if only their own incomes were taken into account.
The overall poverty rate — defined as an annual income of less than $11,139 for individuals under 65 and $22,314 for a family of four — rose to a 17-year high of 15.1 percent last year. That’s the third consecutive annual increase for the poverty rate, which has increased by 2.6 percentage points since 2007.
Experts see the economy’s travails not as part of a boom-and-recession cycle, but a seismic change.
“This is a fundamental transformation that is taking place in the economy,” said futurist Edie Weiner, president of Weiner, Edrich, Brown Inc. “It’s part of a long wave of fundamental transformations.”
Just as technology made agricultural production more efficient and ushered in the industrial age, Weiner said the world is changing again.
“The speed with which these transformations come, because of the speed of technology, is clearly the major story because we don’t have time to grow the new fast enough to employ those who are no longer needed in the old,” she said. “That’s why the pain’s become so much more excruciating everywhere around the world. In 2005 we could have expected the transformation to hit again. What happened was soon after there were all of these financial shenanigans. It was a beautiful excuse to lay off loads and loads of people. That’s why it’s a jobless recovery, because it’s a transformation, not a recession.”
The technological advancements of a changing society have both helped and hurt retailers.
Faster computers, the Web and mobile technology all allowed retailers to supercharge their supply chains and inventory management systems and ushered in a wave of efficiencies.
Those same developments have also helped shoppers get more bang for their buck, and members of Gen-Y seem intent on using their digital tools to the fullest as they sift through the endless options online and turn to comparison shopping apps.
But even if younger people were not constantly connected to the Internet and tied to the latest gadget, they would have a much different consumption profile than older generations, changing the complexion of retail. Gen-Y is a generation that has for whatever reason delayed adulthood, waiting longer to have kids and putting off home ownership in favor of renting.
It’s a generation that is temperamentally more attuned with the Baby Boomers than their Gen-X predecessors, said Kit Yarrow, a consumer psychologist at Golden Gate University and co-author of “Gen Buy: How Tweens, Teens and Twenty-somethings Are Revolutionizing Retail.”
“Our values around spending and money usually develop when we’re 12 and under,” Yarrow said. “It doesn’t mean [Gen-Y is] not going to adjust to economic realities, but in their heart, I think this generation is always going to feel fairly optimistic and feel that having things and buying things are really part of who they are.”
The recession and financial crisis and the economic weakness still to come will help shape the attitudes of those still learning to walk or to find their place on the playground, she said.
Gen-Y has already been formed.
“Technology has really taught this generation that new is always better,” Yarrow said. “They’re looking for a less-expensive way to get something new. They don’t care as much about quality. Having a lot of money isn’t a source of status for this generation. They get their status through their ability to curate. They get their status from attention, from people noticing their great taste. [They] come up with costumes to wear for their fans. It’s very display orientated.”
And it relies very little on big names to drive fashion.
“[Designers] can’t just sit there with iconic status and expect people to bow in front of them anymore,” she said. “[Gen-Y doesn’t] want to pay homage to a great designer. This generation wants to be involved. It’s really, in effect, them being the designer.”
The changes and challenges represented in this new kind of consumer will continue to keep retailers on their toes and, perhaps, force them to rethink how they approach their business.
“We’re absolutely in for a long, painful slowdown,” said David Bassuk, head of the global retail practice at AlixPartners. “Retailers should be first of all facing the facts and recognizing that it’s going to be a tough fourth quarter. That translates into managing prices strategically around promotions. Retailers need to be aggressively focusing on their loyal consumers and…being more effective at social media and online targeting.”
These are the skills that will now help retailers win the market share war.
“They’ve done the baseline cost cutting,” Bassuk said. “Now’s the time to recognize that things are not turning around quickly. They’re going to need to be really aggressive. There’s a recognition right now with some retailers that had hoped for things to turn around quicker, the time horizon just isn’t going to be there.”
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