Everybody in retail knows that their success depends on understanding the customer. And understanding the customer starts with understanding their demographics.
Demographics is defined as statistical data describing a population or groups within it. As a result, demographic trends shape the future of the consumer market. Because those trends are linear and predictable, retailers can see the future by simply tapping into them and adjusting their strategies accordingly.
But with businesses enthralled by big data, demographics looks old fashioned and irrelevant. It has become increasingly popular to say demographics don’t matter in anymore, like a recent article in Huff Post, ”You’re Not That Special: Why Demographics Don’t Matter.” As a result, retailers have largely relegated demographics to site selection and media buying, but not much else.
But guess what? Demographics is the biggest data of all. For retailers, demographics was and still is destiny.
Over my 40 odd years in research, I have long held the value of demographics insights and credit Peter Francese with schooling me on their importance. He founded American Demographics magazine in 1979, which was acquired by Crain Communications in 2004 and folded into Advertising Age.
Francese and I sat down to have a far-ranging discussion about demographic trends, starting with how profoundly illiterate most retailers are about them. “Most people think demographics is just plain boring. They want something sexy, but when I talk demographics to business people, you can almost hear them snoring,” Francese quips.
One retailer that has been listening is Walmart. “Walmart has paid very close attention to demographics. I can tell you that from personal experience,” he shared.
But many other retailers have been caught unawares, which is the underlying cause of what has been called the retail apocalypse. The unexciting, yet fundamental demographic trends changing the retail market in American include declining fertility rates, shifting age and income distributions and how these have impacted the American family structure.
For too many retailers these shifts have silently crept up on them. Francese traces the root of the problem to the age of most C-suite executives. “They are in their 60s and graduated from college thirty or more years ago. The culture was totally different then,” he says. “It is hard to pull that image out of their minds and replace it with something that is 2020.”
But he adds that they are under tremendous pressures to get better results year after year. Clearly demographic insights would help.
“So when I hear that 5,000 retail outlets will close this year, my reaction is, ‘Where have you been?’ You should have been rationalizing your retail footprint gradually over the years or changing your business model, not waiting till it’s too late,” he believes.
Declining birth rate means less people shopping
The declining birth rate is one data point that would have clued retailers into the future trajectory of their businesses. Families with children spend more and their children grow into adults who become customers, too. The retail apocalypse characterized by the massive store closings coincides with the drop in people having children .
Birth rates in America have not just fallen, but they are at an all-time low and below replacement levels. “There were more births during the Great Depression than there are today,” Francese shares.
In 1936 at the trough of the Depression there were 75.8 births per 1,000 women. In 2017 there were only 60.3. By comparison, in 1957 at the peak of the baby boom, there were 122.7 and birth rates has been on the decline ever since.
Retailers have for too long operated under a “build-it-and-they-will-come” mentality, Francese believes. “But no matter how wonderful the stores look or what great products they have or how much money they invest in advertising and marketing, it makes no difference. If customers aren’t there, you can’t manufacture them.”
This leads him to point out another popular demographic fallacy in retail circles. The millennial generation does not mark another baby boom.
Myth of the millennial boom
Everybody has heard that the millennial generation is bigger than the baby boomers, some 87 million strong as compared to 76 million boomers. But the pure number of consumers in the generations is not as important as how they have been absorbed into the consumer market.
“Millennials are a really important generation, no question about that. But they are no baby boom,” Francese says. To prove it he points to the consumer age distributions that marketers and retailers focus on. The number of people in the key age groups are flatter than when baby boomers moved from childhood to adulthood.
“In the age groups 25-to-34, 35-to-44 and 45-to-55, there are roughly the same number of people, between 45 and 40 million in each. There are minor perturbations and regional differences, but basically we have about the same number of people in each of these age groups most attractive to marketers,” Francese says.
Another key difference between the boomers and millennials is the economic conditions into which they were born and came of age.
For example, the boomers entered the market with a bang. They arrived following WWII after people had experienced almost a decade of hardship. After the war, pent-up consumer demand was unleashed.
And governmental policies in the post-war years supported economic growth with the GI Bill that provided education, low-cost mortgages and business loans to returning service members. The boomer babies born between 1946 and 1964 enjoyed those economic benefits throughout their lives.
By comparison the millennials “got the very, very short end of the stick,” Francese says. “The first thing that happened to them is they got saddled with $1.5 trillion in student debt. Mortgage lenders look at them and say ‘Sorry, you already got a mortgage, called a student loan, and I’m not going to give you another one.’ So they have mortgage-level debt already but no house.”
Add to that, millennials’ purchasing power hasn’t grown along with their rising income. According to a recent Pew study, today’s inflation-adjusted average wage has about the same purchasing power it did in the late 70s, some 40 years ago.
“The differences when retail C-suite executives got out of college and where we are now is insanely different. But it isn’t buried in the minds of the people who are running retail,” Francese says.
Get more millennial demographic insights in
Meet the HENRYs: The Millennials That Matter Most For Luxury Brands
Emergence of a grandparent economy
While the number of consumers between the ten-year age groups from of 24-and-64 are roughly the same, the baby boomers will keep driving the economy even as they reach their senior years.
Consumers over 65 years old are the largest group in the population and will continue grow. “There are over 50 million people age 65 and older and in five years there will be over 60 million,” Francese shares.
As much as the aging population will impact the health care industry and drag on social security, it will also give rise to a new grandparent economy that is unprecedented in its potential for retailers. There are about 43 million people in their 50s now, which year-by-year will add numbers and purchasing power to that group.
“Today the most highly educated people in America are men in their 60s,” Francese says and they also share high levels of wealth. “They are absolutely, unconditionally the wealthiest set of grandparents the world has ever seen.”
The implications of the grandparent economy are profound. For one, they have more time to spend and shopping has been a favorite pastime of this generation since their teen years. But retailers tend to favor the 24-to-44 age demographic, dismissing the gray-haired shoppers in their midst.
“Too many retailers ignore seniors and think they have no money or they are only interested in buying drugs or health products. Nothing could be further from the truth,” he says. The fact is many grandparents are buying diapers, not for themselves, but for their grandchildren. And they are buying many other things for their grandchildren, children and friends as well.
“These customers expect to be treated with respect and welcomed, not blown off by sales clerks who just see grandma bugging them again,” Francese says.
Senior boomers can become a retailers’ best, most loyal customers if retailers are in tune with what they want, both in terms of products and services. If they don’t get it, they will just go online instead.
Immigrants and the black and brown underclass
Rounding out the most impactful demographic trends that retailers need to prepare for are the net positives that immigration will bring, including hard-working families with children. This has to be balanced against the negatives, since many of these immigrants will enter the market in the low-income underclass, where many black and brown families are caught.
Sadly the economic boom brought on by the baby boom largely bypassed the black and brown minorities. “It is a shameful chapter in American history, but the baby boom was almost entirely white,” Francese explains. “Hispanics and African-Americans simply have lower incomes so they have less money to spend.”
Median household income for a white, non-Hispanic household was $66.4k in 2017, as compared with $40.3k for black and $48.7k for Hispanics, any race.
More immigration can give a significant boost to retail sales by making up for the slow indigenous growth in the population that is now between .5%-to-1% annually. “Immigrants are still family oriented but have to work two-or-three jobs to cobble together enough money to live,” he says.
That also leaves them with less time to shop and ultimately living very close to the edge. “These are people who would be ruined by an unexpected $500 bill. They are always looking for a bargain to replace something that they have to replace because it is just worn out.”
Walmart gets it
In closing Francese points to Walmart as a retailer that truly understands these demographic trends and has been planning for them for years.
Walmart understands the financial constraints of lower-income shoppers, so they continue to double down on the “Save Money. Live Better” promise with easy access and affordable prices for better-quality goods.
It understands the time constraints of lower-income, as well as two-income families, where long working-hours press into in-store shopping time. Online shopping, buy-online-pickup-in-store and curbside pickup are the solution.
And for those that enjoy higher-incomes and for whom low prices are not the driver for shopping there, Walmart is acquiring brands like Bonobos, working with higher-end brands, like Lord & Taylor and Bobbi Brown, and adding services like Jetblack personal shopping service. Not to mention, it continues to improve the quality of the products offered in the Walmart store and website.
And like Henry Ford who raised the pay of his autoworkers in order to make customers for the automobiles his company produced, Walmart is raising pay for its workers and providing educational opportunities to groom leaders for its future.
“Walmart is doing spectacularly well,” Francese concludes. “They understood the demographic trends years ago and are continuing to account for them on a monthly and weekly regional basis. Walmart has a supply chain second to none, so they can shift product offerings at a moment’s notice. This gives them a huge competitive edge. As a result, Walmart is flourishing, while so many other retailers are languishing.”