Millenials are having an increasing impact on the retail industry. Reports estimate that the generation’s, defined as people born between 1982 and 2004, spending will soon account for approximately 30% of all retail sales, as this blog recently discussed. Millenials were hit hard by the financial crisis of 2008 and the ensuing recession by coming of age in a time where wages have been stagnant and job opportunities relatively scarce. Compared to previous generations, Millenials have less spending power, are less likely to form households in their 20s and early 30s – a traditional symbol of success and stability – and are choosing to forego suburban neighborhoods in favor of smaller urban apartments. In part as a result of this drive towards minimalist urbanism, we have seen the birth of the so-called “sharing economy”.
From Uber, to ZipCar, to Airbnb, Millenials are choosing experiences over possessions, and are saving money in the process. Sharing economy services accounted for a staggering $3.5 billion in spending in 2013, and this same dynamic is now creeping into the retail industry. For example, startup Rent The Runway urges customers to question why buy when you can borrow by offering short-term rental options for what might otherwise be prohibitively expensive pieces of formal attire. More traditional retailers such as The Home Depot offer customers the opportunity to rent expensive machinery such as a stump grinder or sod cutter, items that would otherwise often clutter a garage after they are used for a limited project. These offerings hit the same trends: why spend hundreds, if not thousands, when you can share and save valuable space in the process?
But, despite these trends, we believe that the growing prominence of the sharing economy is unlikely to have a major impact on traditional brick and mortar shops. Bulky home improvement machinery typically lends itself to inspection and discussions between consumer and in-store employee, and even if such complex products were offered for rent via an online platform, shipping the goods back and forth may not be practical or economically viable. Big box home improvement stores could expand their application of the sharing economy model by offering customers the opportunity to rent smaller and less expensive, but still rarely used, products such as a paint sprayer or belt sander in-store, where the customer may then also purchase the paint, sandpaper and other products needed to complete the project.
In a similar vein, personal items such as clothing undeniably lend themselves to in-person inspection to ensure proper fit and to assess quality. In fact, Rent The Runway has recognized this need and has rolled out retail locations where potential customers can try on their wears instead of waiting to receive a rental package the day of the event only to be disappointed when the item does not fit or is simply not right for the occasion. Further, the business has started to offer its customers the opportunity to purchase the same “gently loved” merchandise once the clothing is retired from its website – whether the customer has fallen in love with the item after a trial run or wants to buy a designer label that was previously unaffordable – by shopping at its expanding warehouses, which presents customers new buying opportunities that are strengthened via an in-store platform.
Despite the perceived threats to retail, innovative landlords and businesses will see growth opportunities to capitalize on the changing needs and demographics of the day.