WE ARE NOT IN A RETAIL RECESSION, ITS WORSE – THE IMPLICATIONS ARE EXPLOSIVE FOR MANY OF OUR BEST-KNOWN BRANDS
Here are the facts from our re
The headline working population numbers in 2025 are:
- Over 40’s Working Population will decline by 20% or #1,450,000 from 2019 levels.
- Millennials Working Population will growth by 2% or #207,000 from 2019 levels
- Gen Z Working Population will grow by 84% or # 2,340,000 from 2019 levels
- The impact of generational change on retailers while dramatic between 2015 to 2019 will double between 2020 to 2025
Since 2015 things have been tough in retail with many retailers barely growing year on year sales mainly helped by eCommerce sales propping up a lack of sales growth in bricks & mortar. From 2019 to 2025 things will be much worse. Many retail commentators have described this as a “retail recession” or a down retail cycle that typically should last around 2 years. Our research indicates tough times are here for selective retailers caught on the wrong side of a permanent generational working population changes.
In case you think our research does not apply to your retail business as the saying goes “ A rising tide lifts all boats, a falling tide will lower all boats”.
The strategic implications for Retailers & Consumer Businesses with a sizable customer segment in the 40’s + and millennials are
- The 40 & overworking population will in effect decline 30% in 6 years if you allow for 2% inflation, 20% if you don’t. The result will be retailers will need to target millennials or suffer major loss of customer base. X generation will have 0% growth and as the oldest have now hit 54 years of age and will start retiring, drifting to part-time work or saving for retirement.
- Next year millennials will hit 40 years of age. Millennials working population will grow 2% over 6 years which is effectively a decline of 10% after inflation.
- Gen Z with an 84% growth in working population means it’s a good time to start a Gen Z retail or a direct to consumer business.
- To put this into context if the majority of my customers are 40 and over then to maintain the same number of people to sell at 2019 level, these retailers will need to generate 25% of revenue from millennials, if they want to grow the pool by 2% per annum, they will need to generate up to 40% of revenue from millennials.
- Cross-generational selling is a challenge
In Australia and New Zealand there are a large number of established retailers focused in this 40’s & over segment including, Noni B Group, Susan Group (Susan & Suzanne Grae), David Jones, Myer, The Pas Group (Blackpepper), Lowes, Country Road Group, Blue Illusion, Cue to name a few. All these Brands have a sizable market share in the 40’s & over customer segment. According to the data, not all will survive and we are already seeing major players with stagnant sales, declining margins, and profits.
“These material losses of customer base will be terminal to many retailers, if they do not undertake significant corrective action”
If you don’t want to blow up your business then many retailers will need to restructure & transform and add new capability especially around analytic, systems, buying, strategy and marketing.
“Retailers most effected by generational change will be those focused on the 40 & Over Market or the Millennial Market “
There are 3 steps retailers need to take now
- Step 1: Calculate what percentage of your customers & revenue are generated by Baby Boomers, Gen X, and Millennials and apply a discount based on our research to quantify a worst-case scenario. Uncomfortable yes, best practise also yes. In 2015 one of our consumer customers identified that by 2020, 50% of their top 20 customers now would not be in their top 20 in 2020 and so set about transforming their business.
- Step 2: Build a 2025 Strategy to reposition your business again second nature in consumer businesses rarer in retail. One of the best examples of retail strategy, in my opinion, is Best Buys “New Blue” 2020 Strategy delivered in 2017 and the previous incarnation “Renew Blue” developed in 2012.
- Step 3: Accept you will need to take calculated risk however doing little is the highest risk within our view a 30% + corporate failure risk. Step 3 is, therefore, implementing your 2025 strategy and rebuilding your business with talent & new capability.
What prompted our research was the discussion I recently had with the CEO of a successful medium size fashion retailer, on the need to change their strategy in the light of changing consumer behaviour and his feedback that “we are OK as our customers are the over 40 market, we do not need to source millennial customers” and he felt confident that if they focused here in their traditional business they would prosper.
Of course, many bricks & mortar and eCommerce retailers will prosper by making the necessary changes but more than a few will not survive, they will wake up tomorrow read the results of our research and think “that’s interesting” roll over and go back to bed or think, Christmas/Holiday Season is approaching, I will worry about it later.
Just about every retail business in Australia have major customer segments that are millennials and or 40’s and over will face major decisions on direction and the type of structure and talent they need.
The seismic shifts in generation working populations, each with different buying behaviours, means at the very least you will have to rethink your strategy, take “smart risks” and move now, time is up.
* Our Research: In producing our forecasts we relied on the following assumptions and data points:
- Participation rate kept constant at June 2019 of 66.2% with an unemployment rate of 5.3% net employment of 60.9%
- Population projections
- Generation Projections: ABS/McCrindle