J'Amy Owens, president of the Retail Group Inc., a Seattle-based strategic retailconsulting firm she cofounded 12 years ago, believes the retail economy will increasingly be driven by experience as opposed to transactions. "Retail has to feel relevant or it's dead," she says.

The driver behind such a shift is a segment of the population few retailers have paid attention to: the babies of the baby boom. Generation Y -- those born between 1977 and 1994, 70 million strong -- will represent 41% of the U.S. population in 10 years. But already the boomlet is a major force in retailing -- Gen Y-ers spent $122 billion in 1997 -- and Owens is now devoting a fair amount of her time to unraveling the group's shopping DNA. Nike has sought Owens's help in courting this demographic. One of her ideas was for Nike to hand out disposable cameras to a lot of young people to see what their world looked like. "It's a very cheap form of market research," she says.

One simple statistic that demonstrates how Gen Y spells trouble for traditional retailers: only 15% of them frequent department stores. Besides being the place where parents shop, department stores specialize in the product as opposed to the customer, Owens believes. Retailers like Urban Outfitters and Old Navy have become the department stores for this new generation by allowing its members to buy into a lifestyle, thus providing a more complete sense of self, she says. And as these kids grow up, the stores will evolve with them, selling them not just clothes but home accessories and furniture.

This is a generation that has grown up in contradictory times, in which a booming economy has been undercut by continual downsizing and the relentless push for greater productivity. In addition, many Gen Y-ers have a computer at home, and in their eyes the PC is often more to be trusted than their own parents. This is a generation of "sophisticated little consumers," weaned on instant gratification, yet, says Owens, 90% of them say they believe in God. It is a group whose faith runs deceptively deep.

Accordingly, the store of the future that caters to this cohort, says Owens, should have the following mix of elements:

  • Wired wonders. In-store Web access. In-store inscribed electronic "Word Wall" and interactive-media wall, allowing customers to leave the equivalent of "digital graffiti."
  • Environmental control. Digital audio and video recordings selected by customers -- anti-Muzak. Ability of customers to change light levels, scents, and so on.
  • Authenticity. Lots of sunlight, water, and vegetation. Employees who are the same age as the customers. An atmosphere that reflects world citizenship and multicultural tastes.
  • Inclusiveness. The equivalent of a speakeasy (minus the bathtub gin) inside the store -- a discreet gathering place.
  • "Safe danger." Climbing walls and skateboard ramps. Elements that cater to this generation's chronic need for stimulation and excitement.