Back to the Future
Nov 1, 2007 12:00 PM, By Elaine Misonzhnik
Sophisticated tastes
With the outsized purchasing power comes a high level of consumer sophistication. Gen Y-ers grew up in the information age, with product reviews and price comparisons only a mouse click away. They have been bombarded with TV commercials and newspaper advertisements from an early age. Their parents passed down to them the love of aspirational shopping, as they strove to leave their middle-class origins behind and acquire the trappings of luxury, notes Winter.
As a result, Gen Y-ers exhibit a price consciousness and brand consciousness that far exceeds their age. “The have grown up feeling entitled and think of themselves as collectively special,” says Nancy Robinson, vice president and consumer strategist with Iconoculture. “That makes them demanding and discerning consumers who live in an environment of ever-expanding choice.” So how can retailers succeed with such a hard-boiled audience?
It all starts with the product. Gen Y-ers may be brand-conscious, but their brand loyalty depends more on consistent product quality than on status, says Greg Maloney, CEO of Jones Lang LaSalle Retail, a Chicago-based third-party shopping center manager. When baby boomers were in their 20s, they bought Lacoste polo shirts for the iconic alligator logo, Maloney notes. But his 21-year-old daughter keeps coming back to White House|Black Market because the clothes there fit her better than in other stores, not because she is enamored of the name.
“The prevailing point of view is that they are brand-conscious, but they often look at new brands,” says Brad Sago, president of Consumer Mindset, a Colbert, Wash.-based marketing and business strategy firm and a professor of marketing at Whitworth University. “If they feel like the product and the brand are of a higher quality, they would be very willing to pay more for it.
“But you have to give them a reason for the higher price,” he adds.
That brings up an important point for discount retailers. Because Gen Y-ers comparison shop on the Internet, they know a good deal when they see one and will try to save money. While they probably won't consider apparel from a discount retailer, they still look to Wal-Mart and Target for other purchases. For example, a 2006 teen survey by the Harrison Group showed that 55 percent of respondents ages 13 through 18 named Wal-Mart as their favorite store, followed by Target at 54 percent and Best Buy at 51 percent.
“It's not the brand of the store, it's the brands in the store that matter, and Wal-Mart and Target are doing a good job of bringing in brands,” Winter says.
Apparel chains like H&M and Zara tend to be popular for the same reason, adds Amanda Scoblick, director of retail leasing with New York—based brokerage firm Winick Realty Group. Since they often partner with high-end designers to create fashionable clothes for a fraction of the couture price, they appeal to Generation Y's practicality. “There is a cool versus expensive factor,” she says. “There are not a lot of people wearing a label on their shirt now because that's not how they choose to define themselves.”
The “cool factor” ties in with the importance of design. The generation that grew up with the iPod expects everything to look good and be easy to use, from the product itself to the store. Abercrombie & Fitch has hit on a particularly successful formula with its combination of spotlighted merchandise, edgy photographs and contemporary music at its stores, according to Gronbach. “The floors are cool, the displays are cool, even the fitting rooms are cool, and that's important with kids,” he says.
But as successful as Abercrombie & Fitch has become (from 2004 to 2006, the company's net sales grew 64 percent, to $3.3 billion), it is not likely to gain the kind of omnipresence that Gap Inc. achieved in the 1980s and 1990s, Gronbach points out. That's because Generation Y has diverse tastes, from the Goth styles that Hot Topic carries to sporty and casual apparel at Abercrombie and American Eagle. Others prefer the fashion knockoffs that H&M and Forever 21 sell. As a result, Gronbach expects that in the next few years we'll see the emergence of smaller, boutique-like chains, with each targeting a different segment of Generation Y consumers, rather than a single catch-all brand.
Whichever subgroup they belong to, however, Gen Y-ers crave positive feedback from their peers, says Ann A. Fishman, president of Generational Targeted Marketing Corp., a New Orleans, La.-based marketing and consulting firm. More than other generations, they have taken part in extracurricular activities and organized sports from a young age. That's fostered the idea of cooperation and groups — behavior that has now been carried over into the retail world, where Gen Y-ers shop in packs.
