Millennials, Marketing and the Desire for New Experiences

What your industry can learn from the retail sector might open a new generation of clients to you

by Melissa Reagan

Everywhere you turn, Millennials play a central role in our culture and economy. Their influence on the workplace, technology, social media, politics and more, driven in part by their status as the first generation of digital natives and largest generation to date, has driven the need for a closer look at the group.

As Millennials grow older, their spending habits and a proclivity for collecting experiences instead of stuff are creating a significant shift in factors driving success within the commercial real estate and retail sectors, according to a recently released study by the real estate research arm of MetLife Investment Management.

Significantly, Millennials are leading the shift among other generations in spending more of their discretionary incomes on “Instagrammable” activities and experiences – prime concert seats for a favorite band, appealing and tasty meals out, enviable snapshots from picturesque vacation spots and caffeinated drinks prepared so beautifully they are termed “latte art.”
Even when shopping for material possessions, Millennials want more than just value from a retailer, seeking out venues that offer unique products, attention to design and detail and high levels of customer service.

An overall shift in the trend toward experience-based shopping and spending is occurring not just in the Millennial generation, but also in the Gen X and Baby Boomer cohorts. The impact of Millennials’ pursuit of experiences and experience-based shopping on the development and continued success of retail centers has not been fully explored and understood, but such an understanding is critical for these centers.

Millennial Shoppers: Unifying Characteristics Among a Diversifying Crowd

At 83 million, the Millennial cohort born roughly between 1983 and 2001 outnumbers even the Baby Boomer generation.
While Millennials are more diverse across racial, religious and political lines than the generations that came before them, unifying characteristics emerge when taking a closer look at factors that drive their spending and shopping habits:

• More educated than other generations
  Millennials have not all fully entered the workforce, but of those Millennials over age 25, approximately 35 percent have attained a bachelor’s degree or higher, putting them on track to be the most educated generation in history.¹
• Education provides a greater financial edge than in the past
  Completion of a four-year degree or higher provides an annual earnings bump of $17,500 for full-time, working Millennials between the ages of 25 and 32 and they are significantly less likely to be unemployed when compared to those with a high school diploma (3.8 percent vs. 12.2 percent).²
• Student loans can hold back Millennials’ wealth accumulation
  A higher proportion of households (37 percent) headed by an adult younger than age 40 have student debt of some kind, and these households are not creating wealth nearly as quick as those without student debt.³
• Millennials are saying “not right now” to once-traditional rites of passage
  Marriage and home ownership, two traditional rites of passage for adults in previous generations, are not pressing priorities for Millennials.. The average age of first marriage has increased 2.5 years in the last two decades,⁴ while the percentage of home ownerships under the age of 35 has declined in recently years (34.2 percent in first quarter of 2016 vs. 38.9 percent in first quarter of 2010).⁵
• Yet, Millennials are upbeat about their economic future
  Millennials are the most confident of adult generations about their economic future, with more than eight in 10 saying they have enough money now for the lives they want (32 percent) or will in the future (53 percent)^.6

Experiences vs. Stuff

Millennials’ optimism about their future, despite the economic burdens they carry, shows itself in spending patterns among discretionary income: Millennials are spending on goods and services that differ markedly from the generations that came before.

Where past generations were concerned primarily with acquiring possessions well into middle age – large homes, cars for the garage, furniture and electronics to fill those homes – MetLife Investment Management (MIM) real estate research concludes that Millennials appear to be more concerned with the acquisition of experiences and memories, and will remain so in the future.

MIM research analyzed consumer expenditure data from the U.S. Bureau of Labor Statistics across four distinct categories – essentials, experiences, stuff and other – and the findings support Millennials’ increased preference for experiences. Millennials’ marked shift in spending on experiences over stuff is changing how retailers and real estate developers cater to this generation, as Millennials not only spend a majority of their disposable income on experiences but also do so at a higher rate than generations past when at the same age.

Calculating a ratio of spending between the two categories, MIM analysis found a ratio of less than 1.00 indicated higher spending on stuff, while a ratio above 1.00 indicated higher spending on experiences.

By looking at the 25-34 age group at different time points to correspond with different generations in the same life stage, MIM found Millennials spend more on experiences (ratio of 1.14) than Gen X (ratio of 1.01 in 2009) and Baby Boomers (ratio of 1.00 in 1989). By the time the 25-34 age group is comprised completely of Millennials in 2017, we expect even greater proportions of discretionary income will go towards experiences.

But Millennials are not the only ones craving less stuff and more experiences – since 2008, the experience-to-stuff ratio of spending for all consumers rose swiftly and stood at 1.29 at the end of 2014.

This increase could be attributed to the rise of Baby Boomers entering their late 50s, a time when acquiring material possessions becomes less important, and we expect Baby Boomers to continue this trend in spending on dining, entertainment and travel and move away from the purchase of material goods associated with raising children and furnishing large homes.

Positioning Retail for Success – A Shift to Experience-Based Formats

High-quality malls and lifestyle centers are experiencing great success, outperforming other retail formats in five of the last seven years, at a time when the retail sector has lagged overall and the purchase of goods moved online at a swift rate.

What makes high-quality malls and lifestyle centers even further appealing is their defensive positioning against e-commerce, offering an experience that is nearly impossible to replicate online. While dining establishments and live entertainment cannot be fully replicated online, the melding of shopping, dining and entertainment into one locale further amplifies the experience for shoppers and experience-seekers. But the recognition of these trends alone does not produce retail success – an ability to identify the right mix of retailers from the products and services for the right retail format is critical for continued success.

Criteria for Retail Viability and Success

MIM real estate research offers investors several suggestions when selecting retail tenants likely to thrive in the new retail landscape, separated into three distinct categories: experience, financial and distribution.

• Experience:
  A customer’s shopping experience is affected by a myriad of factors, but the greatest emphasis should be on a retailer’s ability to offer unique products and deliver a high level of customer service. Apple is a good example of a retailer experience great success due to their focus on impeccable and efficient customer service while selling complicated electronics by knowledgeable staff in a modern and simply-designed store setting.
• Financial:
   When combined with solid financial management, a strong customer experience should lead to outperformance and investors should focus on those retailers that consistently outperform the sales of their competitors.
• Distribution:
  Brick-and-mortar retailers can best combat the distribution advantage of e-commerce by adopting an omnichannel sales strategy and building a highly efficient supply chain, which has allowed innovative retailers like Walmart and Target to comingle their sales and distribution processes, shorten delivery times and improve quality and efficiency of the shopper’s experience.

Conclusion

As consumers, especially the growing Millennial generation, benefit from rising incomes and lower housing costs, their desire for experience-based shopping and adventure-seeking will continue to impact the retail sector. Well-managed retailers with unique product offerings, high levels of service and quick delivery times hold the most appeal and will contribute greatly to superior performance at top-ranking retail centers. ◊

Endnotes
1. MetLife Investment Management estimates based on data from the U.S. Census Bureau
2. Pew Research Center, The Rising Cost of Not Going to College, published Feb. 11, 2014
3. Pew Research Center, Young Adults, Student Debt and Economic Well-Being, published May 14, 2014
4. U.S. Census Bureau
5. Ibid.
6. Pew Research Center, Millennials in Adulthood, published Mar. 7, 2014