As the buying power of those born in the 1980s and 1990s hits critical mass, how are US department stores responding?
By the end of this decade, millennials - people born between 1980 and 2000, also known as Generation Y - will displace baby boomers (those born between 1946 and 1964) as the biggest consumer spending group in the US. They will account for approximately $1.4trn (£844bn) in spending by 2020 or about 30% of total retail sales, research by management consultancy Accenture found.
Yet walk into some department stores in New York today and you could be forgiven for thinking baby boomers are still the future.
A handful, such as Macy’s, Bloomingdale’s (which is owned by Macy’s) and JC Penney, have been targeting millennials with concepts such as branded shop-in-shops. Macy’s in particular has gone after the millennial customer, creating a number of dedicated womenswear and menswear brands for 19 to 32-year-olds - collectively called Impulse - and partnering with ShopKick, an app aimed at the younger, more mobile-friendly generation that allows shoppers to earn points and rewards as they walk in store, which also works with location tracking technology iBeacon.
But the luxury department stores - Bergdorf Goodman, Barneys and Saks - have yet to implement year-round initiatives for this group. They instead create one-off events or spaces, such as Barneys’ pop-up area last Christmas showcasing a menswear collection created in collaboration with rapper Jay-Z. “Many of these initiatives are temporary - they aren’t plans that are baked into the store’s strategy,” explains Aria Hughes, associate editor of retail for trend forecasting agency WGSN. But she warns that this will have to change: “Neglecting this market would be a big mistake.”
In New York in particular, the pressure on department stores to court Generation Y is increasing as Nordstrom - a popular Seattle-based department store chain that targets 25 to 54-year-old customers - gears up to make its long-awaited Manhattan debut in 2018. Nordstrom already has an off-price store in the city, but no full-price offer.
“Nordstrom has a very sophisticated understanding of [the millennial] customer,” says Lynette Brubaker, partner and chief marketing officer of Lividini & Co, a New York brand consultancy. “It has always had a very keen focus on understanding its young consumer and endearing them to the Nordstrom brand so they become a customer for life. It was one of the first to do interesting musical partnerships; having DJs spinning in store and creating lookbooks dedicated to the millennial customer that are heavy on content, almost like magazines. I think its arrival in New York will up the game for everybody.”
She points to the chain’s themed Pop-In@Nordstrom shop, which launched last autumn in select stores across the US with the aim of introducing new designers to the ever-demanding millennial shopper. Nordstrom also bought flash Sales site HauteLook in 2011. “That’s another place where they are bringing that millennial customer in, because they are driven by style and value,” explains Brubaker.
Some of the higher-end stores are starting to address the challenges and opportunities of the millenials. Bloomingdale’s, which positions itself as an upmarket division of Macy’s, revamped the contemporary floor of its New York flagship to branded shop-in-shops and brought in more European brands in mid-2013. It has also tested various technologies, such as the Me-Ality body scanner that helps customers determine their jeans size for specific brands. As the first truly digital generation, millennials expect a multichannel shopping experience.
Meanwhile, luxury department store Lord & Taylor announced in July that it will launch two new concept shop-in-shops in its Fifth Avenue flagship targeted at younger customers. Brand Assembly opens this month and will showcase up-and-coming designers, while Birdcage, which will open in October, will feature clothing, as well as homeware, jewellery and accessories.
US department stores - particularly in New York - can no longer pretend not to notice the demographic shift. “It’s an exciting time for US department stores,” says Brubaker. “They’re going to go through a lot of change.”