What trends will upend established retail business models and lead to new ones in the next five years?
If that question matters to you, you're in luck: Analysts and professors have done their homework on the topic. Here are some trends they're tracking:
Millennials love deals and discounts.
In their new book, Retail Revolution: Will Your Brick-and-Mortar Store Survive?, Harvard Business School faculty members Rajiv Lal and José Alvarez and former HBS Research Associate Dan Greenberg present a compelling series of millennial coupon statistics.
For example, in a survey of U.S. online shoppers buying consumer packaged goods (CPGs), 55 percent aged 18 to 34 said they download coupons from coupon sites. That majority figure is powerful in its own right. But it grows in importance when compared to the coupon-downloading behaviors of older consumers:
Ages 18 to 34: 55 percent
Ages 35 to 54: 38 percent
Ages 54 and up : 21 percent
This trend--succinctly stated as millennials dig discounts--holds up no matter how consumers obtain the discounts. Whether downloading coupons from retailer sites (53 percent for ages 18 to 34, compared to 40 percent for ages 35 to 54, and 24 percent for ages 54 and older ) or using social media to get them (40 percent for ages 18 to 34, compared to 22 percent for ages 35 to 54, and 4 percent for 54 ), the evidence is clear.
Why do millennials love discounts? For one thing, the job market was horrible when they graduated. In 2010, 37 percent of 18- to 29-year-olds were unemployed, the highest rate in 30 years. That kind of joblessness will turn you into a relentless penny pincher.
It will also turn you into a zealous customer of companies like Uber and Airbnb, which provide you with what you want (rides, accommodations) at lower prices than the traditional service providers (cabs and hotels).
Online retailers are building business models around a newfound price-consciousness.
The venture capitalist community is betting heavily on a prelaunch startup called Jet.com, which aims to compete with Amazon by becoming a one-stop discount site and buyer's club for consumer products.
The founder is serial entrepreneur Marc Lore, who sold his previous venture, Quidsi (the company behind Diapers.com and Soap.com), to Amazon for $545 million in 2010. Jet.com has already raised $220 million (from heavyweights like Bain, Accel, Goldman Sachs, and Google Ventures) and boasts a $600 million valuation.
What kind of business model are Lore and these investors creating with their time and money?
To be sure, it's a model showing they've done their homework on the millennial mania for discounts. It's almost elegant in its consumer-facing simplicity. Here's the concept: For a $50 fee, you can become a member of Jet.com. This membership gives you access to savings on consumer products--the sort of goods you need to buy anyway--far exceeding that $50 fee.
The company states that the annual member fees will allow it to deliver "profit-free pricing"; that is, to back up its claim that "all of our profits come from membership fees, not the products we sell."
And that's just the beginning. Jet.com also promises a new form of pricing transparency. For example, once you start adding items to your virtual shopping cart, Jet.com will flag other products shipping from the same location. Buy them together, and your savings will increase.
Likewise, you can garner additional savings--on top of the savings Jet.com promises in its overall value proposition--by opting out of free returns, or using a debit card to pay, as opposed to a credit card.
Whether Jet.com's plan will actually work, we'll know by 2020, if not sooner. What stands out about it for now is that its business model--backed by some big money--is a radical rethinking of what consumers want from an online shopping experience.
"I think the next [e-commerce] wave [which is predicted to grow to a $300 billion market] is going to care more about price than service," Lore told Inc.'s Christine Lagorio-Chafkin. "And Jet is positioned to be ready for that next wave."
All of which would be one thing if it were just Jet.com attempting to find a path to consumer's wallets by being more transparent about pricing. In fact, you can see this trend beginning to manifest itself in other corners of consumer product e-commerce.
For example, when it comes to mattress sales, pricing transparency is becoming something of a norm. Tuft & Needle, a mattress maker and online retailer based in Phoenix, offers a detailed breakdown of how much it costs "to make the average mattress." The idea is to show consumers how much flab they'll trim from the price by buying the Tuft & Needle mattress online.
Other online mattress makers and sellers, such as Casper and Saatva, also devote precious site real estate to explaining the merits of their pricing models.
What's more, all three companies are doing well. Saatva, launched in 2011, posted $29 million in 2014 sales and expects at least $50 million in sales this year. Tuft & Needle, launched in mid-2012, says it's already generating more than $1 million in sales monthly. And Casper, which opened its doors in April, 2014, sold more than $20 million in mattresses in its first 10 months.
Brick-and-mortar locations will become distribution hubs and knowledge centers.
One of the smartest brick-and-mortar retailers modifying its business model in response to competitive threats is PetSmart.
As Lal, Alvarez, and Greenberg point out in Retail Revolution, PetSmart faced a challenge when pet food suppliers began selling their products on various e-commerce sites, not to mention at Walmart, supermarkets, and other non-pet-specific places.
That made PetSmart confront an obvious question: How could it continue to lure customers into the stores? As it turns out, PetSmart had two key advantages it could leverage: an open-door policy for customers' pets and well-trained sales associates who actually have the product-specific knowledge to influence customer decisions.
"Because of this," Lal and his co-authors write, "PetSmart's brand partners, for the most part, recognize the benefits of channel exclusivity and maintain it."
Now consider the future of a store like PetSmart in a Jet.com era. A Jet.com member puts her favorite brand of cat food in her shopping cart. She is then presented with delivery options: Would she prefer it if those 20-pound bags of food were delivered to her home, or--for an additional discount--would she be willing to pick them up at a local store?
That is the sort of brick-and-mortar future that Lal and his colleagues envision. Substitute Home Depot for PetSmart in the above scenario, and it still works, all the way down to the store's influential knowledge workers. Both stores also have the advantage of stocking products with long shelf lives. There's less pressure to flip an inventory than there would be for, say, a retailer of rapidly changing high-tech products.
Now add millennials to this mix. Already cognizant of millennials' penchant for finding online discounts, smart retailers recognize that millennials also conduct tons of online research before buying. This habit places an obvious importance on credible customer testimonials, especially those shareable by means of social media.
As an example, David Bell, professor of marketing at Wharton, cites the marketing efforts of mattress maker Casper. Casper's product reviews are sortable by categories, such as whether you're a side sleeper and someone who sleeps with a pet. "You can go onto their site, find a review by someone who's essentially a clone of your own sleeping type, and that can give you some confidence as a buyer," says Bell.
Interestingly, both Casper and Tuft & Needle are complementing their online marketing efforts with brick-and-mortar mattress showrooms. If you're thinking you've seen this dichotomy before but can't quite place it--you're right. Both Warby Parker and Bonobos buttress their e-commerce channels with offline presences. (And as it happens, Bonobos founder Andy Dunn is a formal advisor to Tuft & Needle.)
Though these offline showrooms allow traditional customers to try products in the flesh before buying them, Harvard Business School's Lal believes the expectation of try-before-you-buy is gradually disappearing. He has seen this trend play out both in his research and with his own children, who are in their 20s.
"When they think about shopping, they think about the internet," he says. When he advises his kids to try on apparel for fit, their response is, "We'll buy three and return two of them."