6 major demographic macro trends shaping retail

The retail industry has been challenged by increased levels of online shopping, fierce competition and demographic shifts.  Many marketers in the age of Big Data believe that demographics limit the total picture of consumers, leading into stereotypes that can be dangerous in advertising.  This is true, if your demographic analysis limits you to age, gender, race, ethnicity, family size, etc. without a more comprehensive look at beliefs, values, lifestyles, evolving cultures, buying patters and overall consumer journey.  But I believe it has to start there, and here’s why….

The US population only grew 0.7% in the last two years, the lowest in 80 years, driven by lower fertility and immigration rates.  You tell me which CEO will be happy with less than 1% growth annually.  If you don’t know who is buying your products, why and where, and even more importantly, which demographic population is on the rise in the midst of flat overall population growth, you’re ignoring demographics at your own peril, missing the mark with your growth strategies, and will never meet your financial goals.

I read this interesting Forbes article about demographic trends shaping retail’s future.  I’ve written about many of these trends before, and found a couple I don’t quite agree with and had to correct the numbers (and their assumptions) based on my own recent research this year.  And a few that were not mentioned.  So here’s my list:

1.  The geographical population is shifting, America’s Heartland has moved to the South and West

In 1900, the Midwest and Northeast were home to 62.3% of the U.S. population. Now the South and West are home to 61.7%. They have become the true American heartland.  More people means more people buying.  This has major implications for retailers, particularly with increased pressure and competition from online shopping.  Suburbs growing more rapidly than rural or urban areas.  In fact, share of rural population has declined since 2000. If  you’re in the retail business, understanding these demographic shifts will be critical in your growth strategies of where, as well as who.

2.  Demographic inversion – cities and suburbs trading places

I read a great book a few years ago called, The Great Inversion and the future of American cities by Alan Ehrenhalt, and I’m witnessing this personally in almost all US major cities.  We’ve witnessed this inversion in major European cities which started decades ago.  Rich professionals moving in to the inner city, people with means and economic choice coming to live in the center, and low income minorities and immigrants living beyond the city limits in the fringe suburbs.  More affluent population moving back to the cities made suburbs the arrival ground for immigrants to build a life towards middle class.  This is clear these days by school zoning and property taxes.  This is often referred to as gentrification, a loaded word.  Why is this happening?  De-industrailization of the central city.  Decline in random street violence.  Values and demographics of millennials and overall youth culture, with different ideas about the city and suburbs.  Research done in colleges asking students where they like to live rarely indicate the desire to move to suburbs.  Pop culture and love for urban lifestyle…the popular series, sex and the city was not called sex and the suburbs.  (For more on this, watch this video of Alan Ehrenhalt explaining this concept.)

The sooner we adjust our perception of inner city, suburb and rural, the sooner we can connect this demographic inversion to growth strategies in the retail industry.  We’ve seen retail giants like Target and Walmart relocating to suburbs with re-image and unit expansion strategies capitalizing on this trend.  But many retailers are staying behind and still don’t know why their sales are declining.

3.  Shrinking middle class and increasing low and high income households

Pew Research found that the number of adult Americans in the middle class, defined as people living in households that have incomes from two-thirds to double the national median, has fallen from 61% in 1971 to 50% in 2015, an all time low. And their share of the nation’s aggregate income has declined precipitously, from 62% in 1970 to 43% in 2014.   I’ve noted that the US ranks #3 among all the advanced economies in income inequality, along with other concerning stats.  And the financial gaps between middle- and upper-income Americans have widened, with upper-income households holding 49% of U.S. aggregate household income (up from 29% in 1970) and seven times as much wealth as middle-income households (up from three times as much in 1983).

Retailers have traditionally relied heavily on the middle class population.  But we’re seeing more and more polarization in luxury/affluent and value brands.  You can see this impact by sharp decline in the casual dining restaurants and dividing that market between QSR, fast casual and fine dining.  You can see this in the success of dollar stores, warehouse and off-price stores.

Staying in the middle is very risky and a strategy trap.  That’s not to say that you should forget about the middle class.  I’m simply saying that the share is shrinking and they should not be the only target for your retail value proposition.

4.  Less people working

This goes hand in hand with shrinking middle class.  Shifts in labor force participation greatly impacts the economy and retailers.

According to September 2016 BLS report, after rising for more than three decades, the overall labor force participation rate peaked at 67.3% in early 2000 and subsequently trended down.  Over the next few years, the rate receded to about 66% and stayed at that level through 2008. The participation rate then dropped again by recession, and by mid-2016, it stood at 62.7%.

According to Pew, there are 10,000 baby boomers retiring every day.  In recent years, the aging and  retirement of baby boomers contributed to this decline.  From 2000 to 2015, most of the major demographic groups saw a decrease in labor force participation. Teenagers experienced the largest drop in participation, which coincided with a rise in their school enrollment rate. Young adults 20 to 24 years also showed a decline in labor force but not as steep, most likely driven by delayed adulthood for millennials.

The labor force participation rate of women 25 to 54 years also fell, from 75.5% in 2003-2009 to 73.7% in 2015, with the decrease more pronounced for women who did not attend college.  Although the rate of men 25 to 54 years continued its long-term decline, the decline in women labor force impacts the retail industries the most since 80-85% of consumer buying decisions are made by women. This further supports the rise of value/price retailers.  It doesn’t make financial sense to simply drop the price with their existing supply chain, but value propositions need to shifted or added to address these trends.

5.  Changing lifestyles — more singles, couples and unconventional families

In the 1950s, half of HHs were raising children.  Arthur Nelson predicted that by 2020 that number will drop to 25%.  Millennials have not only delayed marriages, but over 1/3 live with parents or other family members.  According to several research studies, 1 out of 4 millennials say they may never get married.  Two-parent households are on the decline in the U.S., while divorce, remarriage and cohabitation are on the rise. About 1 in 6 American kids now live in a blended family and 1 in 10 live with a grandparent. Multi-generational family living is on the rise.  Pew reported that 1 in 5 HHs include more than one generation.  Women are having babies way into mid-late 30s these days.  And the roles of mothers and fathers are converging, due in part to the rise of breadwinner moms at an all time high of 40%.

All this means new and unpredictable shopping patterns for retailers.  I wrote an article about dads becoming new moms, and must say I’m starting to see men with kids a lot more in advertising.  But that’s not enough.  Think of all types of different demographics buying baby products.  Think of young adults in widely varying ranges of living arrangements.  Think of aging baby boomers as those who are about to start the third phase of their lives, free, healthier and younger at heart. There is a reason we’re seeing a rise in single packaged food business.  Lifestyle marketing must include variety of different forms and unconventional family sizes, which in turn impact real estate, health care, retirement, automobile and so many other retail industries.

And here’s an interesting fact:   There are now more households with pets than there are with children.  According to the 2017-18 national pet owners survey by APPA, 68% of U.S. households, or about 85 million families, own a pet….compared to 41.4% of US households with children under 18, or about 52 million.  (Note: the higher number is caused by increasing singles with no kids having pets.)

Successful companies need to know how to create value propositions that negate traditional family stereotypes.

6.  Americans are more ethnically and racially diverse than ever before, and by 2055 there won’t be a single racial or ethnic majority

This, in my opinion, is the biggest demographic shift impacting American retailers.  According to Pew, the total U.S. population will increase by 36% to reach 441 million in 2050, with immigrants and their children making up a stunning 88% of the increase, or 130 million.  Think of it this way, each day, US population increases by 8,000, and 90% are non-white.  And although Asians represent only 6% of population today, they are now on target to surpass Hispanics as the largest foreign-born group in American by 2055.  I’ve covered this in a previous blog in more details.  As marriage of European immigrants led to today’s white population in the US, it would seem natural to project similar boom of multiracial and multicultural population.

I think once you get past the generation of immigrants and their first generation children, a lot of the cultural nuances go away and other demographic factors come in to play, such as household income, education level and occupation.  But that’s more reason to pay close attention to these demographic macro trends that impact your businesses.

So, it’s true that some traditional ways of analyzing demographics feed into stereotypes.  But I’d add that knowing how to analyze demographics and watching their trends regularly, will negate most stereotypes.

Also read why analyzing demographic trends should be at the core of your strategic planning.