Anyone who believes all Millennials share the same consumer profile are wrong.
That was a key point by Greg Kelly, senior partner at McKinsey & Co., who spoke on “Powering Performance Through Millennials.”
Kelly said, “Too many companies we see get it wrong.”
Millennials are those born between 1981 and 1997. While they are a large demographic group, one shouldn’t think of them as just one segment. According to Kelly, there are at least three different “segments” within the Millennials group classification.
So why would that be important for fashion companies? According to Kelly, the economic universe is highly concentrated at the top, making it a winner-takes-all scenario. Companies at the very top across different sectors have 90 percent of the economic profits, while the middle tiers two through four barely meet their capital costs, and those in the bottom fifth tier see significant losses. Looking at the microcosm of publicly quoted apparel, footwear and luxury firms, about 200 in number, the same economic patterns show up.
Companies that do well are simply doing more in general, and that’s driving why they outperform those in the lower tier groups, Kelly said. He gave as an example Pandora (coincidentally, the winner of this year’s WWD Honor for Best-Performing Company — Large Market Cap), which he said is “funding growth in multiple channels” and in multiple categories. The company is in digital, at retail, has an international operation and is also doing direct-to-consumer. They’ve also “grown in affordable luxury, [introducing] real metals and stones at attractive price points.”
These companies were aggressive in making decisions on where to play, what consumer segments to be in, what categories to sell in and what countries to go into, Kelly explained.
Nike Inc. was another example he gave, noting that while the company has gone after the direct-to-consumer and digital markets, it was the decision to expand in the women’s apparel business that was a game changer. Women’s has since grown to “$7 billion this year, and is on its way to $11 billion in just over 15 years,” Kelly said.
Going back to the Millennials growth market, Kelly said Millennials and Baby Boomers were about equal in number in 2015. But this year, the “Millennials are outrunning the Boomers,” Kelly said, and he predicted that there will be 80 million Millennials by 2025, compared with 67 million Boomers. Also by 2025, the rising income of Millennials could give them about 37 percent of total spending power, or $8 trillion.
To understand Millennials, one needs to know that there are three distinct segments within the demographic group, Kelly said.
The value group, at 40 percent, is the largest. Value group Millennials, because of their lower incomes, are motivated by price and care less about the brand. They are risk avoiders and often look for advice from others. The second group, at 22 percent, Kelly dubbed the “quality Millennial.” This group is loyal and is controlled and thoughtful in their decision-making. They are willing to pay a higher price for something that will last. The final segment is the image group, at 38 percent. This group focuses less on price and more on brands that help them express themselves. They use brands to differentiate themselves, but they’re also more predisposed to loving the good life and spending beyond their means.
In conclusion, Kelly said for companies looking to grow, “research doesn’t support doing fewer things better. And those that are doing better are making more moves. They are more aggressive in finding pockets [for growth], and then allocating more investments [in those areas].”