Home Millennial Pulse Millennials’ Spending Habits Are Impacting The Supply Chain

Millennials’ Spending Habits Are Impacting The Supply Chain

Multiple studies have shown that Millennials spend more when shopping – both in person and online – than members of older generations. The Millennial generation, now aged 23 to 38 years old, makes up about one-fourth of U.S. households. That figure will only grow, as will their spending power, as they age. It should come as no surprise then, that their spending habits seem to be making an impact on the retail industry – the generation is often blamed for the demise of big box department stores, for example – as well as the immense supply chain that supports it.

Because of the size of the Millennial generation, which according to the U.S. Census Bureau outnumbers the prolific Baby Boomer generation, their spending habits are of great consequence to retailers, who have been shelling out for commissioned studies on the topic pretty much since the oldest in the generation started entering adulthood in the early 2000s.

Two studies issued within the past year – one by consulting firm Nielsen in November 2018 and one by research group First Insight in February 2019 – found that most American Millennials are likely to spend more than $50 when shopping, more than any other age group. First Insight found that 74% of Millennials spend more than $50 when shopping in-store, while 54% spend this amount when shopping online. Nielsen’s report cited $57 as the average spent by Millennials per shopping trip, the most compared to those who are members of prior generations. Baby Boomers, for example, spend $46 per trip.

According to Nielsen’s findings, American Millennials are more likely to impulse buy while shopping than other generations – 87% of Millennials said they “always or sometimes” add unplanned items to their carts when shopping. When shopping online, 78% of Millennials do the same.

First Insight notes that while Millennials spend more per shopping trip, they shop less frequently, spending less per year than older generations. Still, due to the life stage of the generation – their average household sizes are growing each year – as well as their educational status (they hold more college degrees than any other generation), their spending clout is expected to increase in short order.

The significance here, of course, is that if Millennials are willing to spend more – and more impulsively – retailers are going to pay more attention to their shopping preferences.

Those preferences differ from prior generations so much so that these habits are impacting the consumer goods supply chain. For example, 31% of Millennials told First Insight they were enrolled in at least one subscription box service, and 38% said they intended to try one in the next six months. Subscription box services are a unique model of online shopping in which the consumer signs up, or subscribes, to periodically receive a shipment of goods selected for them by a company. Stitch Fix, for example, is a subscription box service that sends catered clothing and accessories as often as a buyer wishes. Subscription boxes are also available for food – services like Sun Basket and Blue Apron send prepped, uncooked meals specific to dietary preferences.

The nature of subscription boxes is such that easy returns are a necessity. For example, I subscribe to Stitch Fix, and if they didn’t make returns easy by providing pre-labeled shipping materials, I wouldn’t be using the service.

According to research by McKinsey & Company, a publisher of white papers and insight reports, most subscription box users are between the ages of 25 to 44 – a mix of Millennials and Generation X. According to McKinsey, these subscribers will swiftly cancel the service if a superior end-to-end experience isn’t offered. But ensuring a smooth and swift end-to-end mail service when returns and exchanges are highly likely requires distribution centers close to end delivery points.

Jesse Brouillete, a research assistant at California State University, Long Beach’s (CSULB) Center for International Trade and Transportation and a student at the university, said that a hot topic in his supply chain classes is multi-story warehouses, a relatively new solution to fulfilling online orders near urban centers. Brouillete, by the way, is just a few years shy of being a Millennial himself – at 20 years old, he is a member of the youngest cohort of Americans, Generation Z.

“We talk about multi-story warehouses that Amazon is doing,” Brouillete said. “Basically, multi-story warehouses have been around in Europe and Asia, and they are just starting to come to fruition in the U.S. Why that’s a big change is because basically the companies don’t need as much space for the warehouses because they just build up instead of out. That means they can get warehouses closer to urban cities and reduce lead time – [the] time [it takes] to get products to consumers.”

Amazon has notably been expanding its warehouse network to double down on more rapid delivery to urban centers. Why? Well, in short, the online shopping preferences are perhaps described by the legendary rock band, Queen: “I want it all, and I want it now.” Brouillete, for example, has an Amazon Prime account, and typically does not order items from Amazon that do not have a two-day shipping option. “If I’m not going to get it in two days, I’ll look somewhere else,” he said.

Amazon has also catered to younger online shoppers by opening secure mailing centers on campuses. At CSULB, for example, Amazon has installed lockers where students’ packages are locked securely until they are ready to pick them up. “That’s really convenient. Because I am on campus six out of the seven days of the week, pretty much,” Brouillete said. Amazon has also begun offering in-person returns at Kohl’s stores.

According to research conducted by Michigan State University, Millennial consumers are also interested in an “experiential” supply chain. This concept is similar to a “high-touch” experience in which a retailer makes it easy for a consumer to communicate directly with a company representative. This is a classic approach to retailing, but one that was lost, at least it seems to me, with the dawn of online shopping. And I’d hazard to guess that bringing it back on a massive scale might not be so simple.

How will retailers and their supply chain providers respond to changing shopping habits? Amazon is commonly watched as the trendsetter in this arena. As retailers continue to struggle (Forever 21, for example, filed for bankruptcy and announced more than 100 store closures last week) with a changing landscape, it seems that keeping up with the likes of Amazon (not an easy feat, given the megalithic resources at its disposal), rather than the ubiquitous Joneses, might be the key to survival.

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