How Generations Shop Online Will Define the Future of Retail

A year ago, Newsweek ran an article about the Chinese New Year, explaining how each Chinese zodiac year pairs an animal with one of five rotating elements – water, wood, fire, metal, or earth – and how it will influence the year ahead.

2020 was the Year of the Metal Rat. While open to all manners of interpretation, such a year is considered to be one of renewal and a chance “to turn unfortunate events into fortunate ones.” That could certainly apply to the world of retail.

No other sector was disrupted as much in 2020 as supply and demand see-sawed with each new surge of the pandemic. Lockdowns and social distancing severely restricted in-store shopping and led to a sharp increase in online retail, forcing retailers to reexamine their digital readiness and supply chain efficiency. At the same time, consumers have become more vocal about their expectations than ever before, placing increasing importance on sustainability, convenience, and experiences.

As a result, the sector is undergoing a profound transformation. Now, the question for retailers is ‘How do we proceed?’

The Influential Shopper

During a Big Idea Session sponsored by SAP at the National Retail Federation’s virtual Big Retail Show 2021, Melanie Noronha, a senior editor at the Economist Intelligence Unit, discussed ways retailers can prepare for an uncertain year ahead with Nuno Pedro from SAP’s Customer Experience team and Rob Wood, head of Online at The Entertainer, a leading UK toy store.

Based on a September 2020 survey of over 4,000 consumers that captured spending levels and habits in the U.S., Germany, the UK, Italy, and Spain, Noronha’s team was able to uncover trends by generational cohort. In a study titled “The Influential Shopper,” the team reports that although overall monthly retail expenditure in the countries surveyed declined by 9% from January-March to June-August, online spending increased by 15% on average.

Because online buying behavior varies by generation, from Baby Boomers to Generation Z, Noronha’s advice to retailers is to develop a deep understanding of the generational differences within their customer base. Millennials, for example, dominate online spending. In the period of June to August, they reported online spending 2.5, 1.5, and 1.3 times as much as Baby Boomers, Generation X, and Generation Z, respectively. In the same period, Millennial respondents also reported that 53% of their total purchases were made online.

Understanding what Millennials and Generation Z are passionate about is critical; not only are they the most loyal customer base, but the future of business depends on them. “The Passionates,” for example, is a rapidly growing consumer group that makes decisions based upon values and principles. They won’t buy from, work for, or trust a company unless it is taking action on the issues they care about.

After Millennials, Baby Boomers demonstrated the biggest shift online since the start of the pandemic, increasing their online spending as a share of their total spending from 25% to 37%, followed by Generation X, who increased their share of online spending from 39% to 47%. During the pandemic, online shopping for essential products, such as groceries and cleaning supplies, has become more deeply entrenched, with average monthly expenditure increasing by 78% and 49%, respectively, for the two categories.

But with average monthly spending declining overall by 9% and unemployment soaring in many parts of the world, the report also makes it clear that consumers of all ages are hunkering down for an extended period of uncertainty. Across the five countries surveyed, a quarter of survey respondents do not believe that the economy will recover once the pandemic is under control, and younger cohorts are significantly more pessimistic.

The Opportunity

The shift to online shopping, especially among older generations, presents a unique opportunity for brands and retailers to engage new online customers in ways they never could before. According to Noronha’s team, understanding these trends is vital to crafting strategies for short-term resilience, medium-term recovery, and long-term growth.

As brands expand their digital presence in response to increased customer familiarity with online shopping, they will need to remain agile to respond effectively to evolving consumer habits, enhance the customer experience to stay competitive, and employ personalized engagement strategies – including digital marketing –  to retain customers online.

The Entertainer was one company that was able to ride the ups and downs of the pandemic last year by remaining agile. The toy store’s vision is to fill every childhood with wonder; its mission is to be the best-loved toyshop, one child and one community at a time. The company runs its click and collect business on SAP Commerce Cloud, and its intention is to offer the same level of service anywhere, in store or online.

“2020 was a topsy-turvy year,” says Wood, who is responsible for determining online demand and keeping up with fulfillment. “We had seven times the uplift in the first two weeks of lockdown. Our forecasts were wrong all the time. The only way we managed to weather the storm was by remaining agile and flexible.”

Wood says the company decided not to put all its eggs in one basket and to introduce flexible pay options. Another step was to equip staff with iPads to check product availability from the shop floor during those times when children come into a store in person, eager to spend their pocket money. This type of service reflects the company’s goal of creating fond memories and delivering outstanding service, whether in a real or a virtual world. After all, today’s eight-year-olds will be tomorrow’s influential shoppers.

The Experience

The pandemic has clearly helped online spending expand its share of individual wallets. More effective online selling could offer a shorter, smoother path to recovery for companies, but only for those that succeed in giving customers a seamless experience that keeps them coming back for more, regardless of their age. This builds on consumers’ preferences for shopping experiences that are convenient, so that they can shop from anywhere, save time, and find the best deals.

2021 is the Year of The Metal Ox, considered a favorable time for economic recovery or consolidation after a catastrophic event. It’s a year for long-term investments, a year when problems are solved with hard work, diligence, and discipline.

That makes this year the perfect time for retailers to garner deep insight into the effect of the pandemic on retail spending and shifts in consumers’ online shopping behaviors. Experts like Noronha conclude that those retailers that take time now to understand how online buying behavior varies by generation are likely to be the ones that will come out ahead.


Watch the replay of SAP’s Big Idea Session, “Create a New Retail World through Experiences Your Customers Value.”


Follow me on Twitter: @magyarj