Home & Baby Companies Plan To Profit as Millennials Settle Down

8/28/14Follow @curtwoodward

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But even in an era of slow job growth, young Americans are still commanding a sizable amount of purchasing power. A study by the U.S. Chamber of Commerce estimated that millennials are responsible for $200 billion in direct annual spending and another $500 billion of “indirect spending, largely due to the influence on the spending of their mostly baby boomer parents.”

Consulting group McKinsey also says that millennial shoppers increased their spending about 3 percent per year between 2008-2013, despite the economic woes in those years. The firm has also estimated that millennial consumers will dictate about a third of all U.S. retail spending in 2020—and by that time, plenty of them will be in homemaker and family mode, much to the delight of companies like Wayfair, Zulily, Care.com, and Honest Co.

As they court an aging group of millennials, it’s no mistake that these companies are also focused almost entirely on digital commerce. Bricks-and-mortar retailers saw their foot traffic decline again this winter, leading to speculation that their business has entered a permanent downturn. National chains from Radio Shack to Abercrombie & Fitch have been busily closing down locations in response to slower demand.

So while online shopping is still a small part of the overall American retail sector—about 6.4 percent of all retail in the second quarter—it’s the area showing the most promise for expansion if you’re building a new company, with annual growth rates of 15 percent or higher compared to single-digit growth for retail overall.

“When I was growing up, you got a car when you were 16 and you went to the mall to hang out,” says Jason Stoffer, a partner at consumer-focused venture capital firm Maveron. “Now, fewer teenagers are getting into cars. They’re hanging out electronically, and they’re not hanging out at the mall as much. So what you’re seeing is the propensity of a younger generation to order more of their purchases online.”

Just being in business as millennials age into bigger-ticket purchases isn’t quite enough to guarantee success, of course. Like any generation, consumers in this group have their own quirks and preferences, which savvy businesses have to learn if they hope to get a bite of the pocketbook.

Stoffer, who previously served on Zulily’s board, says millennial consumers want a more authentic, personal relationship with the companies they patronize.

That’s apparent in many of the young companies that have found success marketing to millennials before they hit the home-and-baby years, with personal and professionally focused products like hip glasses from Warby Parker, fashion basics from Everlane, or monthly health and beauty shipments from Birchbox.

Retailers who hope to capture millennial dollars also have to deliver a good value for the price, Stoffer says—something you’d expect for a group entering the workforce after the worst recession in generations.

“People are saying, `I want quality stuff, but I want to get it at a value. I don’t want to pay full price,’” he says. “Millennials were impacted deeply by the recession of `08-`09 and the tough job market. … They’re not going to stop buying, but they’re going to look for a bargain.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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