Millennials—customers born between 1982 and 2000—now officially outnumber baby boomers and represent a key demographic for retail sales and marketing programs. It is estimated that the buying power of the millennials will have an impact for six decades or more—meaning it’s time to start paying close attention to their spending habits, which account for $200 billion in sales revenue annually.
When it comes to shopping, millennials are a unique cohort. Their money, for the most part, is not going towards buying houses and cars the way their baby boomer counterparts did at the same age. And the way they’re spending it, not necessarily bound to brick-and-mortar stores anymore, has led to somewhat of a retail revolution. Twenty-four-hour connectivity and infinite choice has pushed retailers to figure out how to turn standard ten-day shipping into two-day, and two-day into same-day. As a result, brands, among infinite online competition, have had to work harder to earn the attention and loyalty of the millennials. It stands to reason then that brick-and-mortar store brands are at a huge disadvantage.
Not so fast. There is good news for storefront owners: research shows that 90% of sales in the United States still occur in physical brick-and-mortar stores. Meaning: when it comes to getting millennial’s attention, no one, whether it’s a pure online player or a brick-and-mortar store, has a clear upper hand. So what are different types of retailers doing to compete with each other? They’re blurring the line between online and offline. As a result, a new way of doing business has started trending: Online-to-Offline (O2O). O2O is a growing business model where companies who were once purely online players leverage brick-and-mortar stores to enhance their consumers’ experience, thus growing their client base—and their profits.
Connecting with Customers on the Ground
Take Warby Parker, for example. The successful eyeglasses retailer revolutionized the shopping experience with their “Home Try-On” program, where consumers choose five pairs of glasses online and return the pairs they don’t want (all with free shipping, of course). As successful as their online model has proved to be, face-to-face interaction with clients was a priority for the company’s founders. Before the group had acquired a formal office space, they were selling glasses out of an apartment because customers asked to come shop in person. The founders obliged, recognizing the importance of creating relationships and how that could influence word-of-mouth advertising. A few years later, after running a string of pop-up shops, the company signed a ten-year lease for a flagship store in Manhattan, located across the street from big names like Apple and Ralph Lauren.
iP2Entertainment is another success story in this area. They created a whole business around helping companies foster these customer relationships. Their Branded Family Edutainment Centres (BFECs) are used to showcase a particular brand (think clients like DreamWorks) to help create an experience between the retailer and the customer.
“The priority is to generate retail sales through the creation of a fun atmosphere that celebrates a brand or a range of products,” said Roger Houben, CEO of iP2Entertainment. “This creates a showcase which benefits the brands even if visitors do not shop in stores but instead spend on the internet.”
Not Just for “The Little Guy”
In Warby Parker’s case, a storefront helped create relationships with their clients, which proved valuable for the fledgling company in its formative years. But what about an already-established household name like Amazon?
Since their founding, Amazon has successfully pioneered a number of industry game-changers: same-day delivery in certain cities; lockers where items can be picked up within hours; and keychain-like devices that let consumers order specific items at the literal push of a button. Yet, they too have backpedaled, opening a brick-and-mortar bookstore in Seattle last November, and two more to come this year (a rumor to open 300-400 more stores over time is still up for debate). The decision seems absurd during a time where national chains like Borders have shuttered and Barnes and Noble struggles to stay in the game, but at the end of the day, millennials still want to inspect goods before they make a purchase, take them home same-day, and have an overall engaging shopping experience—and Amazon’s bottom line is to give customers the best shopping experience possible.
Using Showrooms to Boost Online Sales
Similar to Amazon’s bookstore, Birchbox—a subscription service where customers receive a box of sample-sized beauty products at their door monthly—opened a retail store in NYC’s Soho neighborhood. The store has a number of attractive qualities that sets it apart from competitors in the beauty industry, but the core philosophy of the company—“Try, Learn, Buy”—is inherent in the setup. In addition to à la carte makeup, a variety of Birchboxes are on display for purchase (or you can build your own). Customers who leave with a positive experience wanting more may be more inclined to sign up for the subscription service. This is in line with the findings of A.T. Kearney’s study, “On Solid Ground: Brick-and-Mortar is the Foundation of Omnichannel Retailing,” which concluded that the value of stores are far greater than the sales that happen within them—in other words, physical stores help retailers sell more online.
Creating Identity Awareness Through Pop-Ups
Research also shows that while baby boomers are interested in abundance, millennials are a lot more concerned with brand ethos. One way companies, like cult eyewear brand Odette Lunettes, are bridging this gap is through pop-up stores.
“We have 52 opticians who are representatives for our brand but we see that a temporary store, including an experience for our clients, enables them to truly discover our brand,” said Bob Geraets, Co-Founder of Odette Lunettes. “Our social media and press coverage would never be the same without it.” In addition to conveying a brand’s identity, pop-ups can be a good opportunity, like in the case of Warby Parker, to test-drive a physical store and see if there results in a boost in online sales.
A Global Trend
One Chinese retailer has been paving the way for the O2O revolution overseas. Alibaba, an Amazon-like internet giant, recently invested $4.6 billion to partner with Suning Commerce Group, an entertainment retail chain that has brick-and-mortar stores across the country. The partnership allows the internet giant to supply customers their goods with a two-hour delivery window in many areas of China, with the stores serving as distribution hubs of sorts. Not only that, but they also recently invested $1 million into Koubei, a digital platform which connects local food merchants to consumers (much like Seamless does here in the United States). By utilizing their digital presence and leveraging already-established retail locations, Alibaba is able to offer goods and services in a way that was unheard of a few short years ago.
O2O and Millennials at MAPIC
Today, omni-channel is at the heart of retail strategy, positioning the physical point of sale as the vital component. Since O2O can take various forms, we will likely see more and more companies adopt similar strategies and tailor them to suit their needs and their customers. That’s why the 22nd edition of MAPIC, the International Market for Retail Real Estate, has chosen to make this profound change the focus of discussions, naming O2O as its central theme for the 2016 event taking place in Cannes, France, November 16-18.
Millennials will also be a key focus, with a dedicated conference session on November 17 and exhibits dedicated to emerging retail trends, solutions and technologies. MAPIC gathers more than 8,000 international participants, including over 2,000 retailers for three days of exhibition, conferences and networking events targeting all types of retail property.
MAPIC will bring solutions for many of the issues business owners face in reaching customers. For business owners who are interested in the pop-up store concept, for example, there will be a Specialty Leasing Lounge. Over 30 brands—consumer, food and beverage, fashion, and concept stores—will be exhibiting for a ½ day on a rotational basis, including Bob Geraets, of Odette Lunettes.
A Trends Hub zone will have an exhibition space, which will showcase thematic exhibitor spaces all linked to emerging retail trends—responding mainly to the demands of the new consumers that are the Millennials. It will host 30 companies such as Paragon Creative (UK), Global Attractions (UK), Vortex (France), Top Golf (USA) and Husson International (France).
Millennials and the Future
It’s predicted that millennials will spend $10 trillion over their lifetimes as consumers in the U.S. alone. The cohort is also growing; there are over 75 million millennials in the U.S. now, which officially outnumbers the baby boomers, according to Pew Research. What worked yesterday will not work tomorrow. Whether it’s through a pop-up, showroom space, or a retailtainment setup, businesses need to find a way to give the millennial cohort a well-rounded retail experience. Being either online or offline simply isn’t enough anymore.
Written by: Nathalie Depetro, MAPIC Director at Reed MIDEM