Defining Gen Y
Tracy D. spends her weekends surfing online, hanging out with friends, text messaging on her cell phone, watching TV and movies, and shopping (with many of these activities occurring simultaneously). A high school senior in suburban New Jersey, she doesn’t have much free time. Not that she minds. She has been programmed since she was a toddler, from play-dates and soccer practice to sleepovers and after-school SAT prep courses.
Tracy hasn’t been spoiled as much as she has been indulged, by baby- boomer parents eager to expose her to the best of everything. She’s had input into the buying decisions of her family for as long as she can remember. Her parents have given her a good deal of freedom, but they are never out of touch. She calls her mother several times a day—just to say hi and see what’s up—and text- messages her father equally often. As she looks ahead to college, she is amazingly confident about who she is and in her relationships. “I plan to stay connected,” she said, “to my friends and family back home.”
While Tracy is not a composite, she very well could be. Technologically adept, unfailingly optimistic and connected online, she is representative of a generation that is poised to overtake the baby boomers in terms of its size and marketing clout. While there is no definitive consensus regarding the birth dates that define Generation Y, who are also commonly referred to as millennials, most demographers agree on a 1982 to 2000 range. Various estimates put the group’s size at 80 million to 100 million. For retailers that have long cast their fortunes with the boomers, Gen Y is a wake-up call to a new type of consumer, one that expects information to be tailored to its individual needs and delivered digitally. Having had spending power and influence in buying decisions from an early age, Gen Y consumers are media-and brand-savvy. They can quickly see through the hype and are attracted to authentic brands.
“For millennials, being fake is worse than being uncool,” said Nita Rollins, director of thought leadership, Resource Interactive, Columbus, Ohio, an interactive agency that helps companies optimize the digital experience.
Gen Y is racially and ethnically diverse, and much less homogeneous than the boomers. It is a group born in the age of the Internet (as opposed to television), which drives both diversity and connectedness. These and other changes have significant implications for retailers.
Gen Yers respond to marketing differently than their parents. They are most likely to be moved by messages in the places they frequent, such as online and cable TV, than by traditional advertising and brand communications. Grassroots marketing, local events, unusual promotions, online efforts and pop-up stores will catch their eye and help build brand support.
“Millennials are redefining the customer journey online and off,” Rollins said. “They will respond to brands that make the effort to engage them and their social networks as equals in the brand experience.”
One of the most important things for retailers to know about Gen Y, according to Rollins, is that its members are perpetually connected to each other.
“They constantly share opinions, influence and validate each other,” she said.
From texting to podcasting to posting on MySpace, GenY lives in a technology- infused environment that allows it to stay connected 24/7. The mobile phone is this group’s lifeline; 81% of teens either own or use a mobile phone and they rarely turn it off, according to Resource-Interactive. E-mail is increasingly a communication form of last resort.
Gen Yers let everyone into their world, and their lives often include dozens to hundreds of online friends that they access through a vast network of social-networking sites. A recent PEW Internet Project study showed that 55% of 12- to 17-year-olds have a profile online.
“Retailers have to learn how to market to a community and tap into millennials’ social networks,” Rollins said. “They also need to leverage the tendency of millennials to consider the opinions of their friends when making a purchase.”
Because they are in constant communication, the influence of peers is more important than that of traditional cultural authorities, such as brand advertising.
“The best way for retailers to permeate this chain of influence is by cool, or viral, tools that facilitate the sharing of consumer-generated content,” Rollins said. “Also, all retailers should be using or at least testing permission-based or user-initiated mobile-cell campaigns.”
Here are some additional insights from Resource Interactive on Gen Y:
Multi-tasking: Gen Y is busy. Multitasking comes naturally to this generation, which consumes media at unprecedented rates.
“Millennials process information five times faster than older adults,” Rollins said. “This has to be factored into your strategies. To get their attention, offer ever-evolving merchandise stories. Also, make sure your brand is easily searchable on its site and the Web. Allow full zoom and invite involvement.”
Gen Y is good at filtering out messages and media that it feels are not relevant. They have zero tolerance for intrusive ads. Humor is a big draw.
“If you don’t want to get filtered out, make sure your messages are fun and entertaining,” Rollins said.
Creativity: Gen Y likes to think of itself as highly expressive. It will seek out creativity and products that show some individuality. “It’s a paradox because they are quite assimilative,” Rollins said. “But limited editions and product exclusives appeal to them.”
Connectivity is a constant of the Gen Y lifestyle, reflected in the skyrocketing popularity of online social-networking sites. Savvy retailers, including American Apparel, Victoria’s Secret and Reebok (see story, page 58), are using these sites not only to market to consumers, but also to gain feedback and insight from an audience that is hard to reach through conventional methods.
Here are five of the hottest:
Immediacy: As a generation accustomed to getting what it wants when it wants it, Gen Y values immediacy. Long waits for merchandise are anathema.
“Retailers should think about allowing for in-store pick-up and payment for goods bought online,” Rollins said. “Or they should provide economical overnight or second-day shipping, which is about as long as Gen Y cares to wait.”
Gen Y also wants instant access to information. Online ratings by their peers are important to them.
“Consumer-generated online reviews are a must-have,” Rollins said, “with the reviews organized by affinity type. They care most about what their peers think.” Gen Y is optimistic and self-entitled, a by-product largely of indulgent parenting. Nearly one-third, according to an MTV poll, believe they will be famous. They think their opinion counts and want to be involved in brand decisions.
“Campaigns that suggest the next phase of the brand could be you…that allow you to share personalized online ads with your friends, all tap into this,” Rollins said.
Howie’s Game Shack and Adrenalina target two big interests of Gen Yers: video games and extreme sports
Taking gaming to mind-boggling levels is Howie’s Game Shack, an 8,500–sq.-ft. computer and console game center for Gen-Y video-game devotees. It is showing wide appeal across the group.
“Our average customer is in his 20s,” said founder Howard Makler, whose background includes the co-founding of Excess Space Retail Services, the Huntington, Calif.-based real estate disposition firm, “and younger Gen-Y attendance is significant.
” A mall concept, Howie’s debuted in Kaleidoscope Mall, Mission Viejo, Calif.
Gamers face high-definition displays and recline in exclusively built sound chairs that provide an almost 3-D experience.
“The average customer plays for three-and-a-half hours,” Makler said, “and we had 200,000 visitors during our first year in business. ”Howie’s opened in August 2005, to big crowds and a media circus—much of it generated through some pretty unconventional means.
“Generation Yers typically shun conventional advertising,” Makler explained. “Promoting our grand opening through traditional means wouldn’t have produced tangible results.”
Makler and his opening team created buzz by using key Gen-Y contacts as foot soldiers, motivating them with free gaming time at Howie’s in exchange for spreading the word through age-relevant vehicles, such as MySpace.
“If you want to communicate with this generation, there are a number of methods—all unusual by conventional standards—that, when used in combination, work.”
It certainly worked for Howie’s, whose crowds haven’t waned since day one. Open seven days a week—12 hours on weekdays, even more on weekends—the younger customers tend to gather in the earliest dayparts.
“What we have found is that, with every hour of the day that passes, our customer gets one year older,” Makler said. On Saturdays at 11:00 a.m., for instance, the store is jammed with adolescents; by 11:00 p.m., the crowd is decidedly older.
The atmosphere is one of safety and respect.
“Howie’s was founded on two principles, neither about reaping maximum dollars,” said Makler. “First, we love gaming. And, because we believe that young people lack positive places to spend time, we deliver something that is definitely needed—a positive place. Second, we want to be able to influence the video-game publishers.”
Makler is not a fan of the current video-game rating system, finding it unreliable for making blanket decisions about content suitability. He and his team review each game played at Howie’s.
Howie’s Game Shack
Headquarters: Mission Viejo, Calif.Number of stores: OneExpansion plans: Three locations opening in 2007, with plans to have 300 in 10 years
“Actually, we don’t just review it,” said Makler. “We play it. We fully immerse ourselves in it, playing it for hours. Without exception, every single game played at Howie’s has been reviewed thoroughly, and we make very strict decisions about whether or not it is going to be played in our public environment.”
That kind of stringent attention has made Howie’s a favorite among Gen Yers, their parents and the local school districts with whom it partners regularly.
A second location will open this summer in Westminster Mall, Westminster, Calif. Locations in Moreno Valley Mall, in Moreno Valley, Calif., and Puente Hills Mall, City of Industry, Calif., will open later this year.
Operating on a movie-theater model, which requires an exterior entrance/exit as well as an interior door, Howie’s brings with it a sales by-product that landlords find particularly attractive. “Because the majority of competitive gamers are male, while the guys play at Howie’s, the gals shop,” Makler explained. “Whether it’s mom or girlfriend or wife, while the guy plays—for an average of nearly four hours at a time—the female in their life has the absolute freedom to shop in the mall without feeling rushed.”
To keep gamers comfortable during their lengthy stays, freshbaked pizza is sold at Howie’s—along with snacks and soft drinks—and is consumed right at the terminal to avoid breaks in the action.
Interestingly, Howie’s isn’t a result of a carefully crafted grand plan, but rather the vision of a couple of daydreamers. Tired of dragging their video-game playing paraphernalia to friends’ houses for group competitions and fun, Makler and another gamer daydreamed about a gaming nirvana.
“It wasn’t so much a grandiose idea of going into business,” said Makler, who has two other investors in the business. “It was more like two gamers sitting around and thinking, ‘If we were going to create a game center that was the ultimate in gaming paradise, what would it look like?’”
Extreme action: One sure way to get the Gen-Y adrenaline pumping is to combine extreme retail with extreme entertainment. And that’s exactly the concept behind Adrenalina. Based on an extreme-sports television show, Adrenalina’s first retail store—in Florida Mall, Orlando, Fla.—opened last November. The star of the show is a cutting-edge wave machine, called FlowRider, that allows customers (for a fee) to test their surfing and boarding skills.
Headquarters: MiamiNumber of stores: OneExpansion plans: In lease negotiations to open additional stores in Florida and elsewhere in the United States.
“When we were creating the concept, we pondered what kind of store would really cater to the Y Generation,” said Jeffrey Geller, co-founder and president of Adrenalina. “We knew it couldn’t be a typical surf and skate shop, but would have to have wakeboarding and skydiving and mountain biking—practically everything we’ve covered in the show.”
Adrenalina currently produces the “Adrenalina” TV show, which airs on Fuel TV and Fox Sports En Espanol in the United States and on Fox Sports Latin America, CDN and Caracol in Latin America. Modeled after its action-sports programming, the Adrenalina store sells clothing and equipment for sports enthusiasts—everything from its own action-sports clothing line to brand-name sportswear to paintball and skydiving equipment, mountain biking gear, and skate-, surf-and wakeboards.
But the biggest attention- getter, particularly for Generation Y, is the FlowRider, which is located in a glassed-in area in the back-left corner of the store. The host of the company’s television show first saw the wave pool at an outdoor water park.
“He described it as 30,000 gallons of water rushing at you and creating a surface where you can do tricks and fall and get back up, something really addictive,” Geller said. “We flew out to see it, and we knew we had to find a way to introduce it into our first retail store.”
It took two years, and a lot of complex challenges for a team of structural and mechanical engineers to create the right pH balance of the water, manage the turbulence and incorporate something so revolutionary inside a mall retail store. And the reaction has been extreme.
“The kids freak out,” Geller said. “The locals come prepared, wearing board shorts and carrying towels into the mall. The tourists, of course, don’t come prepared, so they buy board shorts from us and, if they don’t want to use one of the provided towels, they purchase one of the big beach towels that we sell, and ride the wave.”
In December, Adrenalina began renting out the pool area to groups.
“The wave is a capture point that progresses past Generation Y, grabbing the older crowds as well, but it really works on Generation Y,” Geller added. “Plus, we have a nice lounge with listening stations where they can listen to music and relax, and the FlowRider gives them something to look at that’s different.”
Adrenalina has a second store under construction in Miami International Mall, and Geller is negotiating leases elsewhere in Florida as well as in other U.S. markets. The company is also in discussions—not for this year, but maybe for 2008—for a couple of international locations.
Future stores will be larger than the 7,500-sq.-ft. Orlando unit.
“We now have a 10,000-sq.-ft. requirement,” Geller added. “The first store is a little tight for all that we want to offer.
Home Depot Projects Lower Profit in 2007
Atlanta, The Home Depot Inc. said Wednesday it will pump $2.2 billion into improving its business this year even as it expects lower earnings and slim sales growth. Home Depot said that for fiscal 2007 it expects sales growth in the range of flat to an increase of 2%, a decline in comp-store sales in the middle single digit percentages and an earnings per share decline of 4% to 9%.
Including the effect of a 53rd week in its fiscal year, consolidated sales are expected to increase by 1% to 2%, and earnings per share are expected to decline by 3% to 8%, Home Depot said.
CEO Frank Blake told investors at Wednesday’s conference that like last year, “2007 also will be a difficult year.” But he said it will be a year of focus on Home Depot’s priorities and a year with “hopefully less noise.”
The “noise” was apparently a reference to the investor furor over former CEO Bob Nardelli’s hefty compensation in light of the company’s lagging stock price. Nardelli resigned in early January after six years at the helm of the company. He took with him a severance package valued at $210 million.
To improve its business, Home Depot said it will invest $2.2 billion this fiscal year in key priorities, including the opening of 115 stores. The investment includes $1.6 billion in capital spending and $600 million in expense.
Home Depot said it will recruit master trade specialists, simplify its staffing model, use more technology to aid customer service, and redesign employee compensation and reward plans. It also will invest in new merchandise and review its pricing strategies. Additionally, the chain will spend money on customer loyalty programs, direct-ship programs, credit programs and other specialty sales initiatives.
Federated Plans Name Change
New York City, Federated Department Stores on Tuesday said it would ask shareholders to approve changing the company’s corporate name to Macy’s Group Inc. A vote to amend the corporation’s charter to accommodate the new name will be held in conjunction with Federated’s annual meeting on May 18. If approved, the company will be known as Macy’s Group Inc., effective June 1. The move comes on the heels of the company changing most of its store nameplates to Macy’s.
“Macy’s Group is the appropriate name for our company, given that about 90% of our sales involve the Macy’s brand. That said, Bloomingdale’s is—and will remain—a very important part of our company,” said Terry J. Lundgren, Federated’s chief executive. Federated Department Stores also said stronger sales at established stores and lower costs drove a 5% rise in fourth-quarter earnings. For the quarter ended Feb. 3, net income rose to $733 million from $699 million the prior-year period. Sales fell 4% to $9.16 billion from $9.57 billion, as the company shuttered 80 “duplicative” store locations. Comp-store sales rose 6.1% in the quarter.
During the quarter, Federated lowered its selling, general and administrative costs 11% to $2.31 billion.
The company also announced a $4 billion increase to its stock buyback program and said it will immediately repurchase 45 million shares for $2 billion under the plan.