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Gen Z customers, the new Holy Grail

Today, Gen Z favoured brands are highly addictive and successful due to their interesting offer, convenience, affordability, and seamlessness. But as these players focus in on finding a service that sets them apart, it makes it difficult for more traditional retail formats, like department stores, to stay relevant in the eyes of young shoppers. In fact, retailers can no longer only focus on an interesting offer, they must now offer perfect logistics, seem sustainable, and provide a unique experience. How should retailers respond to these incumbent brands as they change the DNA of the retail business? What exactly does it take to generate an interesting offer and experience for this next generation of shoppers?

A look into hot Gen Z brands: not everything is perfect, despite generational claims

It is important to have a look at three popular Gen Z brands and how they are appealing and winning over young shoppers. As sustainability has been noted as an important factor that impacts Gen Z’s decision making, it is worth noting that some brands are successful despite their level of sustainability. Taking into account how sustainable they are, we can label these brands as the good (Deciem), the bad (H&M), and the ugly (Shein).

The good: Deciem

First, it is worth looking at a popular retailer among Gen Z shoppers, the Canadian beauty brand, Deciem, which has gained a cult following on TikTok for their skincare line, The Ordinary. The reason that it has become such a hit is because it is affordable and offers tried and true ingredients. Deciem has taken the approach of taking basic ingredients and offering them at a fair price, in a space that is typically overpriced with mark-ups.

On top of their successful products, the skincare retailer has also challenged shopping trends that promote overconsumption, such as Black Friday. In 2020 they shut down their stores and websites during the entire Black Friday weekend. And in 2021 they allowed stores to remain open, but did not offer any products to be available to encourage connections over transactions. This year, they even offered a sales event online called “SLOWvember” for the entire month of November, rather than a flash sale, to allow customers the necessary time to think before they buy. This is exactly the rebel stance that Gen Z shoppers are looking for in a company.

The bad: H&M 

Then we have H&M, a prime example of a fast-fashion player that is seriously playing to Gen Z’s accelerated sustainability awareness. Shockingly, H&M was named the most transparent brand in the 2020 Fashion Transparency Index, but how can this be? H&M’s business model is known to be the epitome of fast fashion, using materials that don’t last and that are not recyclable, thus contributing loads of textile waste to landfills each day. In this context, transparency simply means that H&M has disclosed credible and comparable data about their supply chains, business practices, and the impacts these practices have on their workers, communities, and the environment. However, being transparent does not make H&M sustainable in the least bit. They are still a fast fashion brand that is exploiting cheap labour leading to the fast turnover of merchandise with large profit margins.

Nevertheless, H&M has been making efforts to be more sustainable, or so it seems. As sustainability is trending among younger shoppers, H&M has made ‘circularity’ the centre of their recent ad campaign, introducing their new collection that is made with ‘cutting-edge recycled and recyclable materials.’ The retailer also set up a recycling program within its stores and launched a resale site. H&M claims that they hope to use only recycled and sustainably sourced materials by 2030, but they have a long road ahead. H&M’s production rate is only second to Zara’s, selling roughly three billion garments a year! H&M is a major GenZ retailer because they can check off the “sustainable” box while at the same time delivering affordable fashion trends to help young shoppers achieve their unique “look.”

The ugly: Shein

The global pandemic led to the emergence and acceleration of purely digital players such as the Chinese fast-fashion retailer, Shein. Shein has revolutionised the fast-fashion world. In fact, we are no longer speaking of fast fashion, but of ultra-fast fashion. It has changed the retail landscape by offering Gen-Z shoppers infinite amounts of items that are all exceedingly cheap and can be delivered within 6-8 working days. In order to satisfy young shoppers' desires to have a wide range of choices and to stay trendy, Shein launches 30,000 new products per week and knows how to identify market trends faster than any of its competitors. Shein has grown in success through social media accounts such as TikTok which encourages a constant stream of marketing efforts to be able to influence shoppers. In fact, Shein offers major discounts on the most sought-after pieces discovered through influencers. The Shein obsession is causing issues for other retailers, almost as Amazon has done, by offering a fully digital service, and providing very cheap fashion articles with super rapid fulfilment.

According to Benedict Evan’s end of year presentation, Shein is now the largest US fast-fashion retailer. Other retailers, not only fast-fashion brands, are unable to compete with such services while being able to conduct a profitable business. Shein is taking over Gen Z shoppers as they offer affordable trendy styles, advertise to them through everyday social apps, while offering speedy delivery. But with Shein, the sustainability piece is definitely missing.

What are the “dinosaurs” (department stores) doing on their side to attract Gen Z?

Department stores are not staying idle in front of this new competition. They are working on offering Gen Z a wider range of sustainable fashion brands that are affordable at the same time. Galeries Lafayette and Printemps have both taken a firm step forward in the sustainability space. Printemps has showcased a circular fashion floor, including a vintage department where customers can sell secondhand items in exchange for store credit. Galeries Lafayette unveiled an entire (RE)STORE floor with both responsible and affordable brands, exploring recycling and upcycling offers, mainly intended to appeal to all of Gen Z’s desires. The space also features a second-hand corner, as well as a vintage department where customers can resell items, showcasing the different facets of implementing sustainability.

Organising such floors and services brings in these young shoppers to explore an area that feels more familiar to them, versus the overwhelmingly pricey offerings on other floors. Gen Z is no stranger to thrifting their clothes and taking the time to dig out a treasure. As much as they like instant gratification, they are also willing to take the time to search for something unique. Thrifting is in fact an affordable and sustainable alternative to fast-fashion and fits the expectations of Gen Z’s price point very well. As trends have a tendency to go full circle, thrifting is an interesting way for Gen Z to obtain a new look, checking both boxes of affordable and sustainable. Creating dedicated spaces for young shoppers with curated products and services is the perfect way to appeal to the experiences that Gen Z shoppers value when visiting a store.

As Gen Z shoppers are interested in achieving certain luxury looks for a lower cost, another innovative concept is the upcoming launch of Nordstrom’s “See You Tomorrow” shop, a luxury brand resale service. Nordstrom’s approach will be novel in the fact that they will be using lightly used and returned inventory that can’t be sold as new any longer. The items will be cleaned and repaired if needed before being added to the new shop. This service is a natural fit for Nordstrom as they have a very relaxed return policy, therefore this new offer will allow the retailer to reduce their overstock as well as achieve better margins on unsold or returned items. It will also allow Nordstrom to attract a new type of customer, probably younger, as the price points will be more affordable for luxury goods. Similarly, we noticed the same trend at Tech for Retail with re-commerce solutions that can help retailers set up plug-and-play resale shops that will attract new shoppers while giving the retailer a piece of the second-hand margin and maintaining control of branding in the resale market.

An upgraded offer is not enough: to be competitive, department stores must re-engineer several fields of operations

For a more behind the scenes example that is virtuous, yet could entice Gen Z’s luxury appeal at the same time, Farfetch recently launched a pre-order service that partners with brands to allow customers to order looks four weeks in advance which will then be produced based on the number of orders. This initiative will reduce the amount of inventory and waste created by the industry by cutting out any excess products, which is appealing to retailers as the management of inventory is streamlined and brands can get insights on which products might be the best sellers to prepare for re-orders sooner than usual.

Let’s not forget that all these examples are only possible if you have a great supply chain. If retailers want to compete with ‘the ugly’ players such as Shein or Amazon, they will need to be able to have complete control of their logistics arm. El Corte Inglés understood this threat and has already diversified their business through the creation of a logistics subsidiary that will compete against DHL and FedEx and allows them complete autonomy in this area and will be one of the major axes of growth for the retailer in the coming years. Young shoppers want to be served quickly with free delivery and returns as a prerequisite. In order to compete nowadays, the logistics side of the business needs to be efficient.

In order to stay relevant with Gen Z shoppers, department stores need to learn from Gen Z favoured brands such as Deciem, H&M, and Shein as they each give something more than just an interesting offer. Essentially, department stores will need to rethink their working model with add ons such as seamless logistics, a focus on incorporating sustainability at the core of the business through offers such as resale, and creating a space for young shoppers to feel ‘at home’, curated specifically to their wants and needs.

These operational add ons that work behind the scenes will create the environment and experience that Gen Z shoppers demand. Without such changes, department stores will be easily left in the dust by young consumers, especially as new and trending brands start to offer and specialise these kinds of services and experiences. It is important for retailers to understand that there will be a necessary evolution to the basics of the business if there will be any hope of keeping fickle Gen Z shoppers interested in their brand and products.

It is clear that department stores are having to tackle trends that Gen Z players have imposed. Gen Z themselves are having to find a balance between affordability and sustainability while trying to obtain luxury items to achieve a certain look. In order to offer such a balance, retailers will need to think outside the box for new initiatives that could potentially lead to new margin opportunities, attracting different and new types of customers, while fighting against industry issues such as overconsumption at the same time.

Credits: IADS (Mary Jane Shea)