Inside the latest Afterpay report on Millennial & Gen Z shopping trends
As politicians plot the country’s route out of lockdown, retailers and brands are engaged in their own post-pandemic planning. At the heart of any strategising lies one basic question: How will consumers behave once lockdown lifts?
The answer, according to a new report on consumer spending from Accenture Strategy and Afterpay, may be welcome news for retailers.
The Next Gen Index, which explores how consumers are spending and what they’re buying, suggests that retailers should prepare for a high-growth period as pent-up demand coincides with Christmas shopping.
“There’s no doubt some younger Millennials and Gen Z [shoppers] may feel cautious, particularly if they were working in hospitality and hence lost income during lockdowns,” says consultant Atharva Karandikar of Accenture Strategy.
With household saving at a record high, we’re likely to experience a bounce in retail spend on reopening.”- Atharva Karandikar
“But… household saving is at a record high, which means we’re likely to experience a bounce in retail spend on reopening.”
For retailers, this means that strong supply chains and robust stock levels will be key, says Karandikar. Here are some of the top insights from Afterpay’s second Next Gen Index report into consumer spending:
Gen Z and Millennials’ spending power is growing
Shoppers aged under 40 are becoming an increasingly powerful force in the economy. Currently, Gen Z and Millennials account for 36 per cent of the total retail spend in Australia. However, that’s predicted to grow to 48 per cent by 2030 as more Gen Z (currently aged 9-24) enter the workforce.
Spending is down, but is likely to recover quickly post-lockdown
Since Christmas 2020, spending has slowed across all generations, with spending by Millennials and Gen Z now 5 per cent and 7 per cent below pre-COVID-19 levels.
That said, lockdown has accelerated online sales growth through Afterpay. In New South Wales, for example, Afterpay has seen 70 per cent year-on-year growth for Gen Z and 43 per cent for Millennial consumers.
And months of lockdown mean that many shoppers have a cushion of savings.
“There is $200 billion in household savings economy-wide right now,” says Karandikar. “When restrictions eased in Victoria last year, in-store spend quickly recovered.”
In fact, Karandikar predicts above-average consumption until the normal spending – and saving – rates are re-established.
When restrictions eased in Victoria last year, in-store spend quickly recovered”- Atharva Karandikar
Younger Australians are spending more on recreation
Thanks to lockdowns in the eastern states, recreation – including books, electronics, confectionary, games and hobby items – has been the fastest-growing category among all generations in the past year.
Growth has reached 90 per cent year-on-year for Gen Z and 51 per cent for Millennials.
Gen Z and Millennials are championing small business
Gen Z and Millennials account for roughly two-thirds of spending through Afterpay on small and medium-sized businesses. The vast majority – 80 per cent – of these sales are made online.
Karandikar says that retailers can help drive conversions by ensuring marketing is targeted to those groups.
Buy Now Pay Later (BNPL) and debit are on the rise
The number of credit cards and the value of balances has been declining since 2017, and spending on credit cards has stagnated since the start of the pandemic.
In contrast, BNPL payments have risen 120 per cent since January 2020 – and while Millennials remain the biggest users of BNPL, Gen X and older generations are catching up.
How retailers can adapt:
Offer a seamless omnichannel experience
Gen Z and Millennial consumers appreciate value for money, says Karandikar – a purchasing consideration that’s going to be even more pronounced as we emerge into the post-pandemic world.
“They will research products online before going in store, and vice versa, which means merchants who can offer a seamless omnichannel experience will be well-placed to take advantage of the boom that will come once lockdowns end.”
They aren’t necessarily driven by budgetary constraints, but a large payment seems psychologically easier to manage when it’s split into four payments”- Atharva Karandikar
Ensure customers know you offer Afterpay
Millennials were the first to use BNPL, but now Gen X and older generations are jumping onboard. “They aren’t necessarily driven by budgetary constraints, but a large payment seems psychologically easier to manage when it’s split into four payments,” says Karandikar. He adds that highlighting the Afterpay cost is an important sales driver.
Buy Now, Pay Later options will be hugely popular in the lead up to the holiday season because they help customers get what they need when they want. Ensure your customers know you offer Afterpay by promoting it across your channels, including social media, emails and website. Letting shoppers know they can split payments with Afterpay can help increase conversion rates and average order value – that’s why we recommend you include it where possible.
Prepare for a surge when stores reopen
The Next Gen Index shows fashion continues to be a strong category for Afterpay. “Once lockdown lifts, we’re likely to see the realisation of pent-up demand,” says Karandikar. “Retailers may want to use sales mechanisms to clear any backlog of stock in those first few weeks.”
A note from Paul Zahra, CEO of the Australian Retailers Association (ARA): “Gen Z and Millennials are becoming a powerful force in the economy. Within the next 10 years, they’ll represent nearly half of Australia’s total retail spend.
“The Next Gen Index shows how the spending habits of younger Australians has shifted throughout the pandemic, from increased spending on household goods in the latter part of 2020 to more purchases on recreation and experiences in the first half of this year before the latest lockdowns hit.”
“It’s important that retailers can adapt to the consumer trends that are emerging, and through the Next Gen Index, business owners have access to the data, insights and tools they need to grow and innovate.”