Retailers Must Adapt as Baby Boomers and Gen Y-ers Alter Their Shopping Patterns
Oct 6, 2009 11:19 AM, By Elaine Misonzhnik
It doesn't seem that long ago that Abercrombie & Fitch was the hottest apparel retailer around. In the past decade it trotted out three new concepts—Hollister Co., Gilly Hicks and RUEHL No.925 to great fanfare each time. But 2009 has been a brutal year for the once white-hot chain. Its year to date plummet in same-store sales of 29.0 percent is jaw dropping, even amid a sea of declining sales reports coming from retailers these days. In fact, Abercrombie & Fitch's number is quite a bit worse than the 6.4 percent drop by the apparel sector as a whole. And the new concepts haven't done much better. In fact, Abercrombie & Fitch threw in the towel on RUEHL No.925 earlier this year.
As recently as 2007, the mall-based chain was a darling of the retail industry, cited by consumer behavior experts as an example of how apparel sellers can best appeal to Generation Y. Retailers have been salivating over the potential sales to be made by serving the 113 million Americans born between 1979 and 1997. Winning their attention—and keeping it for a lifetime—was seen as the key to long-term success. And Abercrombie & Fitch's emphasis on self-expression and its uber cool store experience, complete with a bevy of good-looking young salespeople, was hitting Gen Y-ers in all the right spots, the experts said. That's no longer the case.
At the other end of the retail universe, a similar pictured has developed. Many retailers seek the potential gold mine represented by the 78.2 million baby boomers born between 1946 and 1964. Boomers have long been one of the country’s most profitable shopper demographics and that trend was only supposed to strengthen as boomers retired, emptied their 401ks and cashed in on their homes.
And, as with Gen Y, there's a retailer that looked like a home run in having captured that segment that now seems to be flailing. In this case it's Talbots, Inc., whose classic style targets baby boomer women. It is struggling as well. According to the prevailing ideas of boomer psychology, Talbots’ core business idea is sound. Although the store carries clothes that are obviously designed to fit an aging body with sizes that go up to 24, it puts emphasis on making its offerings appear “modern” and “youthful.” Yet for the second quarter ended Aug. 2, Talbots reported an Abercrombie-esque 24.9 percent decline in same-store sales.
So what’s going on? Why are Abercrombie & Fitch and Talbots, retailers seemingly at the opposite ends of the demographic spectrum experiencing such similar runs of ineptitude?
The problem lies in the fact that consumer behavior experts that so vociferously directed retailers into the Gen Y and boomer niches never imagined the scope of the current economic downturn and how deeply it would affect the shopping habits of these massive groups of shoppers.
Boomers had been able to spend their way through past recessions. Today they are facing the triple storm of a difficult job market, a decline in home values and decimated 401ks. In February, the Washington, D.C.-based Center for Economic and Policy Research reported in a research paper that the net worth of households headed by those aged 45 through 54 declined 45 percent in the five years since 2004, to $94,200. The net worth of households headed by people aged 55 through 64 dropped 50 percent during the same period, to $159,800.
If boomers were to sell their houses, the paper noted, anywhere from 15 to 30 percent would have to use their own money to cover transaction costs. Add in the fact that many boomers have to worry about helping grown children who have yet to achieve financial independence and taking care of aging parents who might need nursing care and it becomes apparent they don’t have the luxury to shop with as much gusto as they did before.
Meanwhile, most Gen Y-ers are too young to have accumulated significant stock holdings or own homes, so they have not felt the pain of this recession as keenly as their parents, notes Brad Sago, professor of marketing at Whitworth University, in Spokane, Wash. But they see the impact on friends and family and that affects their spending outlook.
With a national unemployment rate of 9.7 percent, older Gen Y-ers are having trouble finding full-time work, while many teenage Gen Y-ers no longer have the pocket money they once accumulated from part-time work and summer jobs. In August, the unemployment rate for workers between the ages of 16 and 19 reached 25.5 percent, according to the Bureau of Labor Statistics. From 2003 to 2007, the average unemployment rate for this group was about 16 percent. And going forward Gen Y-ers will have more limited access to credit than their parents did, which could significantly reduce their ability to spend, notes J. Walker Smith, executive vice chairman and president of Yankelovich MONITOR, a Chapel Hill, N.C.-based research provider.
All the financial turmoil does not mean boomers and Gen Y-ers will stop shopping. It does mean that they have become more conservative and better informed shoppers who are focused on price and quality more than they were just a few years ago. In order to get them to spend, retailers must convince each group that they are offering value, both in terms of prices and in providing unique merchandise.
“Consumers have gotten better at being recessionary shoppers and now it’s up to the retailers to make sure they are delivering to the customer on multiple fronts,” says Corinne Asturias, vice president and consumer strategist for baby boomers with Iconoculture Inc., a Minneapolis-based consumer research firm. “In the past, boomer women were always looking to spend a lot of money on clothes. That really hasn’t changed, but they now say, ‘If I can get a quality piece for less, I’ll do that.’ Talbots represented more expensive purchasing choices and it’s harder to justify [shopping there] when there are less expensive alternatives available.”
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