Things are only going to get harder.
If there is a New Year’s message for fashion and retail, analysts and various reports indicate it can be summed up in two words: Buckle up.
As 2015 winds down, retailers, analysts and investors have already described the year — and the current holiday shopping season — as a challenging one. From the negative, lingering impact of the West Coast ports shutdown earlier this year and a strong U.S. dollar — and related tourism spending woes — to overall lackluster apparel spending and the effect of warmer winter weather on outerwear sales, the year presented numerous hurdles for many companies in the fashion apparel, beauty and luxury markets.
But there’s also been a fundamental shift that occurred in consumer behavior that involves household income, an aging population and a desire to seek experiences over consumption — which fueled the market with an overwhelming amount of caution. Looking forward, the impact of these changes will only intensify, analysts say.
“Consumer expectations have shifted,” said Shilpa Rosenberry, senior director of global consumer strategy at Daymon Worldwide, which specializes in branding, sourcing and retail merchandising strategies as well as consumer experience marketing. “Consumers want more personalized experiences. They want more experiences in general. They are seeking purpose, and want experiences instead of stuff.”
Rosenberry said this fundamental change is both a challenge and an opportunity for retailers. And she said it is driven by social and cultural changes that include Millennials who put more weight into social values and social responsibility than they do in consumption. “And there is a growing aging population that is also focused less on consuming and more about services and experiences,” Rosenberry added.
The shift is also being influenced by other demographic changes — namely a redefinition of the middle class, which has now shrunk in size as the ranks of higher and lower income households have grown.
In a just-released Pew Research Center report, the analysts said after more than “four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it.”
Using U.S. Census Bureau data, the Pew researchers said in early 2015 there were 120.8 million adults in middle-income households, which compare to 121.3 million in “lower- and upper-income households combined, a demographic shift that could signal a tipping point.”
The researchers said that, overall, incomes in 2014 were higher than they were in 1970, but a recession in 2001 and the so-called Great Recession of 2007 to 2009 severely impacted income. “The greatest loss was felt by lower-income households, whose median income fell 9 percent from 2000 to 2014, followed by a 4 percent loss for middle-income households and a 3 percent loss for upper-income households.”
Pew said the U.S.’ aggregate household income “has substantially shifted from middle-income to upper-income households, driven by the growing size of the upper-income tier and more rapid gains in income at the top.” Forty-nine percent of the nation’s aggregate income shifted to upper-income households last year, which is up from 29 percent in 1970. This compares to 43 percent for the middle class, which garnered 62 percent of aggregated income in 1970.
“And middle-income Americans have fallen further behind financially in the new century,” the researchers added. “In 2014, the median income of these households was 4 percent less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28 percent from 2001 to 2013.”
This decline might explain why shoppers are, overall, more frugal. When they do spend, though, it’s on experiences such as eating out or ticking off items on their “bucket list.” Or it’s on big-ticket goods for their homes, or on SUVs to shuffle them to those experiences. But discretionary spending on “things” is clearly more disciplined than it has been — and this is playing out in the market right now.
A just-released survey from Harris Poll for Citi’s Price Rewind program reveals stressed-out, last-minute shoppers who are sticking to a budget. The survey of 1,700 U.S. adults, noted that “those who shop for the holidays are willing to spend an average of five hours visiting multiple stores or researching online in order to find holiday gifts at the best price.”
“And even though shoppers are willing to invest all this time searching for the best deal, over one-third, or 38 percent, say they always or often finish their holiday shopping 48 hours or less before the actual holiday,” the analysts at Citi said. “And time spent searching for the right gifts at the right prices is clearly causing shoppers considerable strain.”
“Over a quarter — 29 percent — say holiday shopping stresses them out, ahead of changing jobs, 27 percent; going to the dentist, 26 percent, and spending time with family/in-laws, 18 percent,” the pollsters said. “The most likely group to be stressed about holiday shopping is female Millennials aged 18 to 34, at 39 percent.”
The survey also found that one in five respondents are more stressed this holiday than they were last year. A separate survey of 2,000 adults polled by e-commerce site Totspot found that 10 percent of respondents “are concerned about staying within their budget” this year while just 20 percent said they were confident that they would not overspend. Sixty-eight percent of respondents said they “are on the hunt for deals and sales.”
For retailers, all of these changes translate to a more difficult environment for business. Couple these shifts with preferences for omnichannel shopping, an over-stored retail landscape and shoppers who are quick to change brand and retail loyalty, and the hurdle becomes mountainous.
But Murali Gokki, director at AlixPartners LLP, said in a research note today that there are strategies that retailers can deploy. In regard to inventory positions, he urged companies to “be flexible, agile and responsive. Expose every unit in the most viable and margin-rich channel. Give your customers what they want where they want it.”
Gokki noted that when it comes to marketing, “make a personal connection with your customers. Relentlessly position your brand across consumer touch points. And know your consumer segments cold. Your messages must resonate and create a connection with your consumers.”
Daymon Worldwide’s Rosenberry agreed. In a forecast of consumer behavior for 2016, Daymon said from a global perspective, there “will be major shifts in the world’s population over the next 20 years, creating a discernibly different consumer market.”
Daymon’s forecast said this is “driven by multiple factors including population growth and decline in different countries, the impact of an increasing aging population and shifts in economic growth.”
Of course, the shift from buying things to having experiences will only increase, Rosenberry said. “Across age groups, consumers ask retailers to align with their core values such as functionality, sustainability, diversity and purpose,” the Daymon report noted.
“Retail winners will find ways to demonstrate purposeful purchasing, from mission-based programs and messaging to more sustainable product development,” the Daymon report stated. “They will also more closely align with consumers’ changing perspectives; for example, embracing gender-neutral retailing or reframing messaging to align with consumers’ desire for reality and vulnerability over perfection.”