Can Wal-Mart Survive Generation Y?

I found a post today on a financial analysis blog, SeekingAlpha.com, It is so provocative and insightful, I am going to share it in (nearly) its entirety.

The basic question is whether Millennials will find Wal-Mart's value proposition appealing -- and if they don't, what are the implications for Wal-Mart's future? I don't know whether or not Millennials will or will not embrace Wal-Mart, but as Ken Gronbach, the author of this post points out, it's not a slam dunk. In fact, after I posted the link on Twitter, one of my Gen Y followers replied to the question, "I hope not!"

"(Wal-Mart's) retail concept is not about selection or breadth of assortment and it is certainly not about short runs of anything. This concept, therefore, would struggle with the fashion tastes of a new market and therein lies the problem. Generation Y, born 1985-2004 and currently between the ages of 5-24 and the biggest generation in U.S. history is the new market. And new markets generally have very fickle tastes. If they don’t want something, it doesn’t matter if it is free–they just don’t want it. Wal-Mart is very used to dictating what their customers should buy–large quantities of very cheap retailer’s choice items."

"Wal-Mart is a Baby Boomer-based company. Boomers were born 1945 to 1964, and Wal-Mart has decades of experience catering to the clearly defined tastes of this generation who are currently 45- to 64-years-old. Wal-Mart has figured out what the mature Boomer market buys. They have also refined this demand to the narrowest selection possible, almost telling Boomers what they will buy. Boomers in turn are okay with this because when you are between 45- and 64-years-old you have pretty defined tastes and preferences that influence your buying of stuff. If Wal-Mart does not have what a Boomer really wants, but does have something close at a very low price, the Boomer will buy it."

"So where is the rub? It’s simple. When consumers hit about 50 years old, according to the U.S. Bureau of Labor Statistics, their demand for stuff begins to subside. At 60 years old a person pretty much has all the stuff he or she needs and then some. At 60, one’s body has stopped changing so one can wear clothes longer, a lot longer. If you want to see what was fashionable thirty years ago go to a Miami retirement community. The point here is that the bloom is off the rose of the Boomers’ consumption of things. The Boomer population is a huge bell shaped curve with many Boomers turning sixty at its leading edge and with its very top cresting at 50-years-old in 2007. All of this means that Wal-Mart needs to find a new market fast if it wants to continue doing business."

"But where does Wal-Mart turn? The two U.S. generations over 60 do not have the critical mass to serve their infrastructure, and besides, for the most part they have stopped consuming. The U.S. population now 25- to 44-years-old is a non-homogeneous combination of the small native born Gen. X (nine million fewer than the Boomers) and the free standing market of Latino immigrants."

"So who’s left? It is Gen. Y, the largest and most powerful generation of consumers this nation has ever seen. Will they be the solution to Wal-Mart’s sales problems?"

"No. Gen. Y is an emerging market, a huge bell-shaped curve with its peak at age 19. They are inhaling entertainment products, fashion, food, electronics and transportation. Selection is everything to them. They do not care about low price unless it is exactly the item they want. Their tastes change daily. They don’t know what they will want six months from now. Wal-Mart’s limited selection, low price offering to the Boomer will not and cannot translate to Gen. Y."

"Oh yes, and one more thing. Gen. Y is on track to become the greenest and most humanitarian generation in U.S. history. If one wants to do business with them they had better be very green and very nice to their fellow mankind. And popular perception is that Wal-Mart has a dismal record on both accounts. Perception is reality. This fact could seriously injure Wal-Mart’s business all by itself."

iPhone: Expensive Phone or Inexpensive Laptop?

iPhones at Wal-Mart? If the rumors are true, Wal-Mart is about to become just the fourth place you can get an iPhone. While that would have been unthinkable a year ago, today it doesn't look like such a crazy idea.... According to a new Comscore report, iPhones are fast movers among those making $25,000-$75,000. In the third quarter, iPhones were up 21% overall, but they increased twice as fast among moderate income people, +47%. While a $100 phone and $70 a month calling plan (well, if you are careful anyway), may seem extravagant, it looks like a real bargain as an all-in-one substitute for a laptop and Internet account, and that's before you factor in the cool factor.

"Mark Donovan, senior analyst, comScore, said "These data indicate that lower-income mobile subscribers are increasingly turning to their mobile devices to access the Internet, e-mail and their music collections... the iPhone is appealing to a new demographic... satisfying demand for a single device for communication and entertainment... "

Since getting my iPhone in April, I have found myself leaving home without my laptop more and more. It's just not necessary if all I am going to be doing is email, directions and checking breaking news. For people who are just plugging into the mobile digital life, the iPhone is the perfect starter kit. For Millennials, it may prove irresistible.

Why Target Hits the Bullesye: Cheap but still Chic

While we are on the subject of retail appeal for Millennials, there is no question that Target is still number one with the right combination of low prices and style. Target has done a great job of staying in the zone of what Millennials value:

Social responsibility: Target donates millions of dollars each year to local schools. Target also sponsors learning opportunities and internships at unversities and colleges, including my marketing classes at University of Notre Dame.

Stylish advertising: Judy Hopelain, who blogs about retail at Retail Hits and Misses, tells me Target is a hit with her 17-year old daughter. They both enjoy this Target spot, running on the Olympics. "It’s got the multi-culti thing going for it, great music, no boring talking heads reading lame copy written by some old guy, and fun bedroom decor you can actually imagine these kids choosing for their rooms."

Sexy in-store experience: My 17-year daughter's disdain for Wal-Mart lighting, layout, and listless looking employees is apparent each time we shop there (which is too often for her. In contrast, she feels fine shopping at Target.

Super Deals: David Patrick, our fabulous client at Westlake Ace Hardware, reports "My 17 year old daughter is price conscious and takes pride in finding deals. Target is her favorite store"

Given those attributes, it doesn't matter that most Target merchandise can be found elsewhere -- like Wal-Mart -- and sometimes for less. Evidence? Target's sales grew 5.7 percent to $15 billion in 2Q, while sales declined at JC Penney, which like Target derives much of its revenue from clothing and home goods rather than groceries. Demographic profiles of Target shoppers show they skew younger and higher income. BIGresearch(8.19.08) shows Target and Macy's shoppers favor Obama, while Wal-mart and Kohl's shoppers skew toward McCain, a finding totally consistent with the demographic profile. This profile should serve Target well as Millennials graduate, start families, and furnish homes. Our bet is that they will keep Millennials' enthusiasm well beyond their 20's. Target is Pepsi to Wal-Mart's Coke -- The Choice of a New Generation.

Millennials: I'm Gonna Be A Star!

Celebrities have a special appeal to Millennials. Many Millennials aspire to be famous themselves -- and being famous actually seems within their reach -- so they pay special attention to those who are already famous. We have noted before how many tween TV shows now feature ordinary kids with celebrity careers, thereby 'normalizing' the experience. Furthermore, Millennials have been told from a young age they can be anything they want to be. USA Today, in a Jan 2007 article, titled "Generation Y's goal? Wealth and fame" observes that half of Millennials expect to become rich, and many expect to become famous in their field, though not as famous as Jessica and Nick. They attribute this to being raised with a camera pointed at them and now the ability to put themselves on the Internet. A 24-year old woman who aspires to being a college professor summarizes Millennials motives neatly: "Fame doesn't necessarily mean being on TV. I personally hope to become an influential figure and to be a prominent researcher in my field...it's famous, but it's much less than stardom. I want to affect society."

Several retailers, including Macy's and Wal-Mart, have leveraged this preoccupation nicely. Wal-Mart cleverly leverages Hannah Montana's superstardom in its current back-to-school commercial with a repeated musical refrain 'want to be rock star' to which the Hannah-wanna-be replies "Bring it on!" The message? 'I've become and star and so can you!'

Pauline Hwa, a former Notre Dame MBA student of mine, who is now helping ogplanet.com market video games, says she and her friends enjoy Macy's celebrity-filled commercials featuring Mariah Carey, Gabriel Aubrey, Carlos Santana, Donald Trump, Martha Stewart, Kenneth Cole, Jessica Simpson and more.

When I asked my friends, the best response I got was for the recent Macy's commercials... the Macy's commercial was very appealing for her and her friends. What made the Macy's commercials resonate with them is not just that (it had celebrities). One person said while she's not a fan of the celebrities featured in the commercials, she knows who each of them are, and she was surprised that they all had products in Macy's stores, which she didn't know about since she doesn't shop there typically. I have seen the commercial she was talking about, and I somewhat agree with her about its success.