Jason Lippenberger, Vice President, Consumer & Retail Investment Banking
Everyone has heard the phrase “money can’t buy you happiness,” meaning that an excess of belongings will not necessarily bring one satisfaction. But what money can buy you — and millennials are tapping into — is an “experience.” Since 1987, consumer spending on experiences and events relative to total U.S. consumer spending has increased 70%. What an experience brings that a tangible item does not is a sense of community and belonging, values that are important to the millennial generation.
A recent Eventbrite study showed that millennials place a high value on experiences and are increasingly spending their time and money on these experiences, such as concerts, festivals, travel, sporting and social events. The study showed that 78% of them prefer to dedicate more income to experiences and events rather than material possessions. In a world of social media, the fear of missing out, or “FOMO,” is a contributor in driving 7 in 10 millennials to engage in life experiences and share them with their network of friends and family.
Businesses are evolving and entering the market to meet the demands of the shift away from materialism, and to capitalize on the approximately $1.3 trillion in annual millennial consumer spending. Companies such as Uber, Top Golf, Eventbrite and Airbnb have shown growth in this event niche, as they are geared towards supporting millennials’ experiential attitude. More regional businesses such as mini golf providers Urban Putt in San Francisco and Flatstick Pub in Seattle help combine nightlife with group activities aimed at a young professional crowd.
This trend is also manifested in an increasing number of legacy companies pivoting to include experiential offerings. Notable examples include REI Adventures, The Clymb, which now offers adventures in addition to outdoor gear, and Sur La Table, which recently started Sur La Table At Home, an option that brings a chef to your home to cook a meal for you and your friends.
The Amazon Effect
As millennials turn their attention to the less tangible, when they do purchase a physical item, it is more often online than not. E-commerce continues to gain traction among high earners and city inhabitants, who prioritize larger product selections, lower prices and ease of purchase. Product categories with the largest online shopping penetration include music, books, electronics and sporting goods — items with which online decisions can easily be made. Consumer packaged goods, including groceries, household products and personal care, remain least impacted by online shopping though a variety of meal kit companies such as Chef’d, Blue Apron and Munchery are becoming increasingly popular.
Brick-and-mortar retailers continue to struggle with profitability, as many turn to omnichannel retailing to combat margin suppression. Still in its infancy, omnichannel retailing offers a seamless shopping experience to consumers and enables traditional brick-and-mortar retailers to compete with online retailers by using a variety of channels throughout a customer’s shopping experience. The integration of retail stores together with online stores and mobile apps, allows customers to visit stores how and whenever they want, with increased personalization and an overall coherent experience.
Other brick-and-mortar retailers focus on what online retailers, like Amazon, cannot provide — the ability to see, touch or try products. For example, at Sephora, a cosmetics retailer, customers can try out various makeup and haircare products before purchasing, similar to Apple or Microsoft stores in which customers can “play” with various computers and other devices. All three offer free classes and in-store events that drive traffic to specific locations. By offering a compelling, convenient and one-of-a-kind in-store experience, brick-and-mortar retailers are transforming into “shopping destinations” like Bass Pro Shops or Sheels. Even high-end retailer Nordstrom is getting in on the action, hosting well-known designers and fashion show events as well as remodeling stores across the country to include cocktail bars, cafés and restaurants.
In an era of convenience and accessibility, the growing demand for a truly integrated approach certainly calls for some creative solutions, and the companies that are losing out are the ones that have difficulty assimilating to this growing demand. As millennials grow tired of tradition and are more detached to material possessions, their focus remains on forming connections and creating unforgettable memories — both in and out of the retail field.