Navigating Retail: Understanding generational impacts on consumer behaviour

The retail consumer sector is navigating a transformative phase marked by both significant challenges and unprecedented opportunities. Understanding the nuances of consumer behaviour across different generations is crucial.

Each generation, shaped by unique historical, social, and economic factors, exhibit distinct purchasing patterns, preferences, and brand loyalty. From the tech-savvy Millennials to the value-driven Baby Boomers, these generational differences influence everything from brand loyalty to shopping habits.

In the first of our ‘Navigating Retail’ series, we're setting the scene with a dive into the generational impacts on consumer behaviour, exploring how businesses can tailor their strategies to meet the diverse needs and expectations of their target audiences. This article delves into how changing consumer behaviours are shaping the landscape, drawing insights from our colleagues at RetailOasis.

The generational shift

We often talk about the Australian ageing population, but our younger generations are fast overtaking their parents and grandparents in numbers. The below graph, created by RetailOasis, shows the generational shift from 2013 to 2021. The black line represents digital immigrants, which includes older generations like Gen X, boomers, or pre-boomers who had technology thrust upon them. The light blue line represents digital natives, such as Gen Y, or Millennials, as well as Gen Zs and Gen Alphas, who have grown up in a world with mobile phones, the internet, and artificial intelligence (AI).

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Figure 1: Graphs and data created by RetailOasis show generational percentage of population from 2013 to 2031 (RetailOasis; Australian Bureau of Statistics (ABS)).

Last year, we saw digital natives overtake digital immigrants as a share of the total population, and by 2027, Gen Zs will overtake millennials to be the leading generation in Australia. This generational shift will continue over the next few years. 

How does this impact Australian retail?

From a spending point of view, digital immigrants, particularly Baby Boomers, are still leading, but they're not far ahead. In the graph below, digital immigrants and digital natives are mapped for their spending. According to RetailOasis' projections of ABS data, in just five years, digital natives will overtake digital immigrants in terms of spending.

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Figure 2: Graphs and data created by RetailOasis show generational spending volume from FY22 to FY34 (RetailOasis; ABS)

Gen Z vs Baby Boomers

We can already see how this generational shift is changing retail in Australia especially when comparing two distinctly different segments: Gen Z and Baby Boomers.

Gen Z, anticipated to be the largest generation by 2027, is the first truly digital native mobile generation. According to RetailOasis, they want convenience and optionality, such as free same-day delivery or free returns. They are extremely informed, with nearly half comparing prices on Amazon regardless of what they're shopping for. The cost-of-living impact is hitting this generation the hardest, leading to reduced spending and the rise of ‘dupe culture,’ which is the art of flaunting knockoffs or fakes.

Loyalty is a challenge with these consumers - they are willing to explore new brands but are hard to retain. They are very influencer-driven and value diversity and education. They prefer sustainable brands, but there's a gap between what they say and what they do, as many shop weekly for fast fashion on Chinese marketplaces like Shein and AliExpress.

On the other hand, Baby Boomers still represent a strong opportunity. Despite their declining numbers, RetailOasis predict that they will have significant economic power for the next five years. They are quickly adopting online shopping and have the highest basket size online out of all generations. They are harder to acquire as customers but incredibly loyal once you have them. Their discretionary spending is focused on hobbies, travel, art, home improvement, and DIY. Health and wellness are also important, with over half reporting a long-term health condition, according to the ABS. The segment is also skewing more female as the older Baby Boomers age.

The great wealth transfer

We're starting to see the effects of the $80 trillion wealth transfer expected over the next 15 years - for instance, in Baby Boomers helping Millennials get into the property market, pushing up property prices. However, while the wealth transfer is still a way off, we're seeing Baby Boomers spending on travel, experiences, art, and luxury items. It's going to have a huge impact, but it will take time to fully materialise.

Gen Z is the future of retail, particularly over the next five years as they increase their wealth and spending. The great wealth transfer to come will grant Millennials the largest spending power, surpassing Gen X, making their spending habits particularly important when looking to the future. However, don't ignore the Baby Boomers, who still represent a strong cohort in Australia.

How BDO can help

Understanding generational shifts and their impact on consumer behaviour is crucial for businesses aiming to stay ahead in the competitive retail landscape. By tailoring strategies to meet the diverse needs and preferences of different generations, businesses can enhance customer engagement and drive growth.

As we navigate these changes, it's essential to stay informed and adaptable. As we continue with our Navigating Retail series, we’ll offer practical insights from our retail team into strategy and industry optimisation. In our next article, we’ll talk about how you can digitally transform to meet this changing consumer market.

If you would like to know more or need tailored support for your business in the challenging retail landscape, contact us today.