Millennials shun the mall
Is growing, while traditional retailers are struggling
C.J. Chu is a retailer’s nightmare. The 24-year-old associate for a private-equity firm does “99 per cent” of his shopping online — even toothpaste. He’d rather buy groceries on the web than walk to the supermarket.
“Convenience and free time is something I value,” said Chu, who works for Bridge Growth Partners in New York City. “Ordering online just makes more sense.”
Chu is an extreme case. Yet millions of North Americans like him are abandoning stores faster than executives predicted, pushing the industry to a precipice.
Traditional U.S. retailers, for the first time ever in 2014, will generate half their sales growth on the web, according to Stifel Financial Corp. That means about $18 billion US in new revenue generated this year will come from online purchases.
The stampede online will only accelerate as 80 million U.S. millennials start families, buying homes and filling them. Mobile shopping is giving e-commerce another boost. Next month, Amazon.com will start selling a smartphone that will allow shoppers to scan a product in a mall and purchase it from the company’s online store, giving retailers another reason to fear.
It’s widely accepted that traditional chains must mesh physical and online stores into a seamless shopping experience, but “nobody is doing it well,” said Anne Zybowski, vice-president for retail insights at Kantar Retail in Boston.
Chains are losing relevance and reinventing themselves. Sears Holdings is selling assets to survive. Wal-Mart generates less than three per cent of sales online, despite opening a Silicon Valley outpost. Even players with a robust web business like Staples are struggling to find the right balance.
The Standard & Poor’s 500 Retailing Index fell 5.6 per cent this year through yesterday, compared with a 5.5-per-cent gain for the S&P 500.
E-commerce has been doubling about every five years, a pace that’s likely to accelerate. While the web accounts for only 10 per cent of total U.S. retail sales, in categories such as computers, online sales have reached more than a third of the total. Products once deemed web-proof — furniture, daily necessities — are moving online.
“There’s been a lot of discussion over the years on ‘where does e-commerce top out?’ ” said Andrew Lipsman, a Chicago-based analyst for researcher ComScore. “We haven’t seen any evidence of it slowing down yet.”
Millennials, the second-largest U.S. generation after their baby boomer parents, will only make life harder for traditional retailers.
While Americans in their 20s and 30s are off to a slow start, their spending will more than double to $1.3 trillion US by 2020 and account for a third of all U.S. purchases, according to Accenture.
These aren’t your mall rats of yore. In a study from ad agency DDB Worldwide, 40 per cent of men and 33 per cent of women in the age group say buying everything online would be ideal.
More than a third of millennials already say they rarely or never go to an enclosed mall, according to a study last year by the Urban Land Institute, a non-profit focused on land use. As many as 60 per cent seldom visit apparel-focused department store chains like J.C. Penney.
Retailers from Best Buy to Nordstrom have often cited customer service as an advantage, the reason shoppers should frequent their stores. Yet traditional chains are losing that edge to the web, too.
A decade ago, Nordstrom topped the National Retail Federation’s customer-service rankings. By 2011, the one-time champ of making customers feel special, had sunk to 10th place — behind Amazon, Zappos and Overstock.
“It used to be a high-touch, personalized thing, one person to another,” Peter Nordstrom, the chain’s merchandising chief, told students in April at the Fashion Institute of Technology in New York.
“Now customers value speed and convenience. That never used to be part of the equation. It was a giant wake-up call for us — that if we didn’t make that part of our core competency, we were doomed.”