Libby Gronbach, a 15-year-old Connecticut native, spends a lot of time online, like most of her Generation Y peers.

She watches videos on YouTube, checks social networking sites like Facebook and MySpace, downloads songs from iTunes and shares what she finds by e-mailing and instant messaging her friends. Most significantly, however, her online experiences irrevocably shape how she spends her money.

Libby is a fervent comparison shopper. She checks all her favorite retailers' sites to find the best products and the best deals. She e-mails links of items she's considering buying to friends to get their opinions. She even influences her parents' spending patterns, helping to research big-ticket items online. For her, shopping remains a social experience, even when she's just browsing the Internet at home.

And Libby's shopping habits are not only relegated to online. She still spends a lot of time at malls, walking through the stores and making purchases in person, even if she's already made up her mind on what to buy before she's walked out her front door.

It's that dichotomy — Libby's blend of mixing the online and brick-and-mortar channels — that's important for retailers and shopping centers to understand as they shift business models from serving baby boomers — for decades the dominant consumer block — to Generation Y and their quirks.

Libby and her peers are already one of the major driving forces in the U.S. consumer market and they will only grow more powerful. Generation Y — which encompasses the 113 million Americans born between 1979 and 1997, or roughly 37 percent of the current population, is larger than the 78-million-strong baby boomer generation and already possesses an estimated buying power of $629 billion annually, according to Iconoculture, a Minneapolis-based consulting firm. However, that's still dwarfed by the baby boomer's estimated buying power of $2.1 trillion a year.

But there are other factors at play. Generation Y has a strong influence on the spending of parents and other older family members. They already influence up to 50 percent of the $6.5 trillion in overall U.S. consumer spending, estimates Kenneth W. Gronbach, 59, Libby's father, president of the Haddam, Conn.-based demographics and marketing consulting firm KGC Direct, LLC. (Gronbach runs a blog on these topics on his firm's Web site, www.kgcdirect.com.) “My children influence everything, from the color of the car we buy to the house we plan to move to,” Gronbach says. “When we were kids, our parents were aliens to us. My wife and my daughters share the same clothes.”

Studies bear that out. In a shopping habits survey conducted last year by Waterbury, Conn.-based consulting and research firm Harrison Group 79 percent of adults with children in the household said they listened to their kids' advice on apparel purchases, 47 percent on car purchases and 42 percent on major household appliances. “It's not father knows best anymore,” says Harrison Group vice president Don Winter.

Moreover, as baby boomers exit the workforce and their spending power diminishes, Generation Y is graduating from college and moving up the corporate ladder, increasing its annual spending potential.

By 2015, Generation Y will account for 25 percent of the U.S. population and will be responsible for a disproportionate share of spending on household purchases and apparel, says Mary Brett Whitfield, senior vice president with TNS Retail Forward, a Columbus, Ohio—based consulting and market research firm.

“This is such an important age group for us to focus on,” says Mike Nevins, vice president of leasing with the Santa Monica, Calif.-based Macerich Co., a shopping center owner with a 77-million-square-foot portfolio. “Their influence cannot be overestimated, not only when we merchandise the property, but when we give feedback to our retailers on their shopping habits.”


Sophisticated tastes

With the outsized purchasing power comes a high level of consumer sophistication. Gen Y-ers grew up in the information age, with product reviews and price comparisons only a mouse click away. They have been bombarded with TV commercials and newspaper advertisements from an early age. Their parents passed down to them the love of aspirational shopping, as they strove to leave their middle-class origins behind and acquire the trappings of luxury, notes Winter.

As a result, Gen Y-ers exhibit a price consciousness and brand consciousness that far exceeds their age. “The have grown up feeling entitled and think of themselves as collectively special,” says Nancy Robinson, vice president and consumer strategist with Iconoculture. “That makes them demanding and discerning consumers who live in an environment of ever-expanding choice.” So how can retailers succeed with such a hard-boiled audience?

It all starts with the product. Gen Y-ers may be brand-conscious, but their brand loyalty depends more on consistent product quality than on status, says Greg Maloney, CEO of Jones Lang LaSalle Retail, a Chicago-based third-party shopping center manager. When baby boomers were in their 20s, they bought Lacoste polo shirts for the iconic alligator logo, Maloney notes. But his 21-year-old daughter keeps coming back to White House|Black Market because the clothes there fit her better than in other stores, not because she is enamored of the name.

“The prevailing point of view is that they are brand-conscious, but they often look at new brands,” says Brad Sago, president of Consumer Mindset, a Colbert, Wash.-based marketing and business strategy firm and a professor of marketing at Whitworth University. “If they feel like the product and the brand are of a higher quality, they would be very willing to pay more for it.

“But you have to give them a reason for the higher price,” he adds.

That brings up an important point for discount retailers. Because Gen Y-ers comparison shop on the Internet, they know a good deal when they see one and will try to save money. While they probably won't consider apparel from a discount retailer, they still look to Wal-Mart and Target for other purchases. For example, a 2006 teen survey by the Harrison Group showed that 55 percent of respondents ages 13 through 18 named Wal-Mart as their favorite store, followed by Target at 54 percent and Best Buy at 51 percent.

“It's not the brand of the store, it's the brands in the store that matter, and Wal-Mart and Target are doing a good job of bringing in brands,” Winter says.

Apparel chains like H&M and Zara tend to be popular for the same reason, adds Amanda Scoblick, director of retail leasing with New York—based brokerage firm Winick Realty Group. Since they often partner with high-end designers to create fashionable clothes for a fraction of the couture price, they appeal to Generation Y's practicality. “There is a cool versus expensive factor,” she says. “There are not a lot of people wearing a label on their shirt now because that's not how they choose to define themselves.”

The “cool factor” ties in with the importance of design. The generation that grew up with the iPod expects everything to look good and be easy to use, from the product itself to the store. Abercrombie & Fitch has hit on a particularly successful formula with its combination of spotlighted merchandise, edgy photographs and contemporary music at its stores, according to Gronbach. “The floors are cool, the displays are cool, even the fitting rooms are cool, and that's important with kids,” he says.

But as successful as Abercrombie & Fitch has become (from 2004 to 2006, the company's net sales grew 64 percent, to $3.3 billion), it is not likely to gain the kind of omnipresence that Gap Inc. achieved in the 1980s and 1990s, Gronbach points out. That's because Generation Y has diverse tastes, from the Goth styles that Hot Topic carries to sporty and casual apparel at Abercrombie and American Eagle. Others prefer the fashion knockoffs that H&M and Forever 21 sell. As a result, Gronbach expects that in the next few years we'll see the emergence of smaller, boutique-like chains, with each targeting a different segment of Generation Y consumers, rather than a single catch-all brand.

Whichever subgroup they belong to, however, Gen Y-ers crave positive feedback from their peers, says Ann A. Fishman, president of Generational Targeted Marketing Corp., a New Orleans, La.-based marketing and consulting firm. More than other generations, they have taken part in extracurricular activities and organized sports from a young age. That's fostered the idea of cooperation and groups — behavior that has now been carried over into the retail world, where Gen Y-ers shop in packs.


They also discuss their purchases and shopping experiences with their friends, both in person and through online forums, so word-of-mouth marketing becomes of supreme importance, adds Gronbach.

The takeaway for retailers? First of all, consider wider aisles so the store can accommodate larger groups of people, according to Sago. In addition, hire Gen Y-ers to staff the stores. “The labor force used by retailers for the past 20 years has been whoever they can get,” says Gronbach. “But these kids speak a different language, so having their contemporaries working in the store is a critical factor.”

And, don't forget, when Gen Y-ers go out to shop, they want more than just a shopping spree. They want to have an experience, a fun outing where they can touch the products and discuss them with other people of their age, says Maloney. Apple stores serve as an excellent example of where the retail environment is going, he says. Anyone who has ever been to one of Apple Inc.'s Apple Stores will remember the modern feel of the layout, the interactive merchandise on open display and the slew of on-site help experts ready to answer even the silliest questions.

The mall is back

Generation Y's consumer savvy and sense of entitlement means that retailers will have their job cut out for them in tapping that lucrative market. “They are looking for…everything. Experience, engagement, empowerment, enticement — basically a reason to be there,” says Robinson. Shopping center owners, however, should have an easier time. It turns out that unlike their parents, who tired of the enclosed mall and now gravitate to town centers, lifestyle centers and downtown storefronts, Gen Y-ers embrace all kinds of retail formats, including the much-maligned enclosed mall.

At the same time, a lot of mall owners have enacted curfews at properties across the country (50 at last count) to control the hours of teen access — the groups shopping tend to be intimidating to adult visitors.

The trick lies in making the mall a social gathering place, as well as a shopping venue, says Nevins. That means adding entertainment components like movie theaters and bowling alleys and providing a selection of fast casual restaurants where teens can sit down and eat for a reasonable price. It's also not a bad idea to cluster retailers targeting Gen Y-ers demographic into a single area within a property, Nevins adds. That's how Macerich targets teens at the 2.2-million-square-foot Tysons Corner Center in McLean, Va. In 2005, concerned that the center wasn't reaching its full potential, the company took a former 250,000-square-foot JCPenney building at the property and rehabbed it, adding another 275,000 square feet of space in the process.

This section of Tysons Corner now features an 18-screen movie theater, a collection of restaurants and a mix of stores that includes Abercrombie & Fitch, Hollister, Urban Outfitters and, come December, the Canadian chain Garage, which sells teen apparel and accessories. The entire project cost Macerich approximately $100 million.

“We specifically targeted key retailers in the Generation Y segment, but we also tried to hit all socioeconomic price points, so we've got everyone, from Old Navy to Abercrombie & Fitch,” Nevins says.

The reason? Even if certain members of Generation Y can't afford to shop at upscale stores, either because of their socioeconomic background or because they are too young to manage their own money, they enjoy window-shopping at upscale chains. Nevins' 13-year-old daughter Hayley, for example, can rattle off a list of luxury brand products she plans to buy once she has the money, even though she can't yet afford most of them.

“When I was growing up, I knew the Gap and I knew Levi's and those were pretty much my options,” Nevins says. “But my daughter already understands what the aspirational brands are and she's looking for her shopping environment to include those stores because she [plans] to shop there in the future.”

Jones Lang LaSalle, which manages 35 million square feet of retail space in the United States and the Caribbean, advises its owner clients to do the same thing. Generation Y members like the clustering of the stores and they also like areas where they can multitask and meet their friends, says Maloney. That's where food courts and movie theaters come in.

If owners stick with that formula, attracting teenagers and twentysomethings won't be a problem, according to Gronbach. Libby, for example, loves to visit the mall every week, spending up to three hours on each visit.

“Mall traffic will increase enormously in the next five years,” Gronbach adds. “That's because the peak of Generation Y will get their driving licenses, and they will be driving themselves to the mall.”

AT A GLANCE
Who: Ages 28 and under in 2007
Likes: Multimedia mash-ups, free content, telecommuting
Dislikes: Mass marketing, beaten paths, Office Space culture
Hobbies: Googling, social networking, supporting a cause
Hangouts: MySpace, Second Life, Mom and Dad's place
Tap that wallet: $629 billion
Source: Iconoculture

Old Navy, despite shedding some popularity, remains the top teen apparel chain among teens ages 13 to 18.

Chain 2006 2003 Change
Old Navy 39% 45% -6
Gap 32 29 +3
American Eagle 30 20 +10
Aeropostale 27 17 +10
Pac Sun 23 15 +8
Victoria's Secret 23 25 -2
Abercrombie & Fitch 22 19 +3
American Outfitters 19 12 +7
Hollister 19 NA NA
Forever 21 15 NA NA
Limited 15 15 0
Banana Republic 12 9 +3
Limited Too 10 NA NA
Eddie Bauer 9 10 -1
Bebe 8 3 +5
H&M 8 NA NA
J. Crew 8 NA NA
L.L. Bean 8 NA NA
(Based on teens that answered they “loved” or “liked” shopping at the stores.)
Source: Harrison Group

Surf 'n' shop

Of all the unique characteristics of Generation Y, its close and personal relationship with the Internet tends to cause the most headaches for retailers and shopping center owners. By now, everybody knows that to succeed with this tech-savvy audience, you need a Web site. But some firms, like the Bloomfield Hill, Mich.-based Taubman Centers, Inc., a mall owner with a 24-million-square-foot portfolio, take the trend even further.

This August, for example, Taubman launched a two-monthlong program that gave its teen shoppers the opportunity to use avatars — Internet-based virtual representations of themselves — to send messages to their parents and friends about which items they lusted after. The program was featured at 10 Taubman centers during the back-to-school shopping season.

The mall owner declined to reveal how much money it spent on the program or how much difference it made in back-to-school sales. But it was certainly a worthwhile experience, according to David Goldberg, vice president of marketing and sponsorship with Taubman.

“All I can tell you is that we have more than doubled the results we projected,” he says. “The reaction from our tenants has been tremendous — they are talking about parents coming into their stores with avatar messages. And from our own inbox, we know our customers are excited about it.”
— E.M.