Today’s Demography Drives Demand Down…Forcing Competition Up
Our Senior Database Marketing Analyst, Clinton Kennedy, recently attended the More In Store: Midwest Retail Strategies Conference. Below is an article he put together based on the presentation by Tom Gillaspy, former Minnesota State Demographer, on The Changing Face of Minnesota Shoppers:
Demand from consumers is going to decline because:
1) Mobility, once a multiplier of demand, is now at its lowest recorded level. People feel it is harder to sell a house and harder to find a good stable job, so they are staying put. The reward for moving has to be much higher than it used to be to offset the risk of being left high and dry.
2) New household/family formation is delayed. Young adults, particularly men, are not earning enough money to support the lifestyle they feel a household should have.
3) Women are becoming the more educated and more stable workforce. Women generally choose to partner with people who are their equals or offer greater socio-economic resources. Household income inequality and socio-economic polarity will be the trends.
4) Suburban growth has slowed while urban population growth has accelerated so that in the Twin Cities the two areas are growing at about the same modest rate. This is partly because Millennials and professional workers have discovered that time is their most valuable and limited resource. Commuting wastes time relative to work productivity or personal enjoyment.
5) The behaviors and interests of the rising generation of Millennials are not the same as the historic patterns perceived as customary and associated with retiring Baby Boomers. Even though their numbers are about the same, Millennials do not want as much or the same sort of expensive stuff as Baby Boomers.
6) Population growth, particularly of educated, high income workers, has slowed. Birth rates fluctuate with the perception of family stability; which is largely secured through income growth. Working women lack support to care for and raise children, so they have fewer children or none at all.
7) Retiring Baby Boomers will be down-sizing, shedding stuff they don’t need in order to require less space, saving money on housing. Growth will be mostly for services, such as healthcare, and not household goods. They will be working to conserve assets and live on fixed incomes.
What are society and businesses to do in the face of demography driving demand down? Growth can come from three sources: 1) internal population growth, 2) increasing productivity, and 3) increased competition… taking sales, investment, and talented resources away from other communities and businesses.
1) Internal population growth is only going to happen if society decides to invest in skills/talent development among the lower class who show aptitude and interest in changing by learning new ways of thinking and behaving to make a living, communicate, and, in general, spend their time. This strategy is not perceived by many to be promising, though it may be the most beneficial to everyone, because it would take so long to accomplish.
2) Increasing productivity is the generally accepted and publicized strategy most broadly instituted by companies and governments, finding ways to substitute capital or cheaper labor for expensive local workers. Low-end kinds of jobs that can be done by cheap labor abroad or by machines here are evaporating, expected to never return. High-end kinds of jobs that are technical/information/data manipulation functions are also being moved off-shore to cheaper labor. On the one hand, this solves a short-term cost structure problem. On the other hand, it creates a long-term labor force distribution problem where there are no local workers in-training in lower-end jobs to build skills to move into many of the higher-end jobs.
3) Increased competition is the unheralded and yet predominant response: Working to take market share from other communities or businesses. It is what China has done to America, in terms of manufacturing, and what India has done in terms of service support and IT services. On a local level, the situation is the same. The primary competition is for talented people who can execute the more complicated ‘plays’ needed to develop and deliver better, cheaper, faster, products and services.
This calls attention to a paradox of the modern competitive, data-driven economy: The ‘tyranny of success’ for a business that does something to achieve any profit margin above average is being quickly discovered and attacked by rivals prepared to grow sales at a lower profit margin. The only defense is constant product or service improvement and better marketing/sales that competitors, in a sense, competing with your own past in order to have a secure future. The communities and businesses that succeed in attracting talented workers will win; while those that export talented and imaginative people will be losers.
Time is Money to Consumers, too:
Beyond all the attributes of any product or service, the attribute of the customer that may become the most important influencer on their shopping/purchase behavior is their sense of time as a scarce commodity. Especially when approaching higher income professional knowledge workers who often dedicate more of their time to work than hourly workers, making the shopping/buying process cost effective in terms of time as well as price is important.
The less a product is engaged in the self-actualization goals of a customer, the more important not ‘wasting time shopping’ becomes. Retailers in categories will benefit from promoting one-stop, broad selection within their desired price/quality range, and the sense of a deal supported by on-line price comparisons. Make it so that the need to shop multiple stores becomes an unnecessary cost to the consumer and the challenge becomes being the first store the consumer chooses to visit.