How Generation Z Will Shape Retail

By Kirstyn Hevey

Over the past few years, thousands of stores have shut down and many North American companies have gone bankrupt. In 2017 alone, 7,000 stores closed their doors, including Sears, Toys “R” Us, Payless Shoes, and RadioShack. The consensus is that shoppers increasingly prefer to do their buying online. Many expected this trend to continue, particularly as millennial purchasing power grows — the generation that supposedly exclusively shops online. However, the opposite happened. While many retailers did close up shop, some developed new and innovative ways of engaging the evolving and ever-discerning shopper.

However, it’s time to shift focus away from millennials and turn to Generation Z (born 1996–2015). This generation already has a purchasing power of $44 billion, and influence another $600 billion in spending by others.

This generation is unique; in their lifetime they have experienced unprecedented change — politically, socially, technologically, environmentally, and economically. These changes have created a generation very different from those that came before: they are the first true digital natives. Retailers hoping to seize the opportunities presented by this new generation of consumers, and their growing purchasing power, need to understand who they are, what they want, and how they want it. Based on focus groups we held, we offer five key insights that will capture the retail dollars and attention of Generation Z.

Experiential Shopping

It’s not so much that Generation Z prefers a cool experience over a cool product, but rather they demand an authentic and unique experience. Businesses must rethink how they deliver value and shift beyond encouraging consumption for the sake of possession. Instead, Generation Z is wanting to consume to express identity and values. The experiential side of retail can provide a customer with opportunities to socialize, to discover something unique, to gain access, to play, to learn. Shopping itself can, therefore, be an experience that can add meaningful value to a consumer’s life.

Think Glossier’s Instagrammable cafe, Vans’ House of Vans in London, the KITKAT Chocolatory, or the pop-up you saw last week at that major intersection. The brands that make shopping a worthwhile experience and move beyond material consumption will strongly resonate with Generation Z.

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Primacy of Ethics

A predominant theme for the future of retail revolves around ethics and values. Generation Z have been defined by their experiences of the Global Financial Crisis, the Obama presidency, and the wars in the Middle East that have been going on since before most of them were born. Today, they are leading climate change activism and advocating for racial and gender equality. They are concerned with matters of equality and sustainability, and they are looking to retailers to take a stand on such issues. They want to shop in a socially responsible fashion; they want to spend their money on products and services that are responsibly sourced and made.

According to a recent study conducted by Greenmatch, 72% percent of Generation Z would spend more money on a product or service if it was sustainably produced. In comparison to millennials, Generation Z is less concerned with loyalty to a particular brand and instead finds loyalty through shared values and commitments. Companies must relentlessly focus on modifying their brand and associated strategies to encompass these movements. Given the mass reach of social media and accessibility of the internet, the choices available to Gen Z consumers are seemingly limitless, which in turn increases their buying power and the demands for retailers to differentiate themselves.

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Personalization & Individualization

Members of Generation Z, like millennials, are looking for more personalized products. According to a recent report by McKinsey, a majority of Generation Z consumers are willing to pay more for personalization, and a majority are willing to spend more with brands that embrace causes they identify with. But they are also willing to pay more for products and services that highlight their individuality and serve to express their values. Fueling this trend is the popularization of AI technology and recommendation engines whereby personalization has become table stakes among retailers playing in the e-commerce space.

  • Personalization: Driven by the brand to tailor consumer shopping experiences based on known customer segment preferences, behaviours, and history.
  • Individualization: Driven by consumers, enabling them to initialize and customize their own singular shopping experiences.
  • However, Generation Z takes personalization a step further and is looking for individualization in their products. Individualization allows consumers to shape the experience or product themselves. Brands that engage in an ongoing dialogue with their customers, connect with them in real-time, and dynamically learn from them will be able to directly benefit their consumers on an individual level.

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    Seamless Integration with Digital

    Most retailers now recognize the need for an online store where e-commerce works in tandem with a physical store. Generation Z wants to use both platforms when making a purchase, and they want to be able to seamlessly oscillate between the two. Maybe they are doing initial product research on their phone, checking reviews, and then going in-store to try-on and buy — and paying with their digital wallet (Apple Pay, Google Pay, Samsung Pay, etc.), which is the payment experience this digitally-native generation prefers. Or maybe they see something in-store, try it on, and then go online in hunt of a better deal through their favourite bargain app. Either way, they want omnichannel.

    For example, ethical retailer Everlane implemented software that connects an in-store shopper to their online profile so they can seamlessly make a purchase. To cater to Generation Z, it’s important that retailers don’t just have a presence across channels, but create an experience that allows a shopper to flow through the different channels with ease.

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    Network Effect

    For the most part, Generation Z has only known a world with social media and the internet. As a result, they readily use Instagram and Snapchat, and are influenced by the content on these and other digital platforms. However, unlike Millennials, Generation Z is looking beyond celebrities for brand discovery and inspiration; they’re looking to everyday people, just like themselves. This new generation is 1.3 times more likely to purchase a product recommended by one of their favourite influencers than through a celebrity endorsement. However, the network effect extends beyond presence on a singular social network.

    Generation Z might learn about a product or service through an influencer on Instagram. Then they might go to YouTube, Yelp, or reddit to check out reviews and ratings. Finally in-store, they might share their shopping experience on Snapchat. For example, Sephora engages consumers through its digital platform that allows shoppers to share photos and chat and connect over makeup and personal care. Not only does this social platform benefit Sephora, but it also creates a unique experience for the shoppers. The given product or service’s value is then enhanced through the many networks used by Generation Z.

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    Conclusion

    Our focus groups and research show that Gen Z is, and will continue, to drive the largest change in retail and discretionary spending we have ever seen. With a purchasing power of $44 billion and growing, the companies that understand the significance of the first digitally-native generation, and craft and deliver worthwhile experiences for them will reap the benefits of the shifting landscape.

    Retailers should consider Generation Z’s demand for experiential shopping, sustainability and ethics, personalization and individualization, the effect of social networks, and the need for a seamless omnichannel experience.

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    About the author

    Kirstyn is the Content Manager at TribalScale. She writes about all things tech and innovation, loves Cold War history, and is a hopeful amateur chef.

    TribalScale is a global innovation firm that helps enterprises adapt and thrive in the digital era. We transform teams and processes, build best-in-class digital products, and create disruptive startups. Learn more about us on our website. Connect with us on Twitter, LinkedIn & Facebook!

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