Will Generation Z Save Physical Retailers?

By Daniel B. Kline Markets Fool.com

Just because Generation Z, whose oldest members were born in the mid- to late 1990s, grew up not knowing a world without smartphones, the internet, and other digital devices, does not mean that they prefer online shopping to buying in physical stores, according to a new survey from IBM (NYSE: IBM) and the National Retail Federation (NRF).

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In fact, the study showed that nearly all members of Generation Z -- which should include 2.6 billion people by 2020 if you count those born through 2020 as members of Generation Z -- actually prefer shopping at bricks-and-mortar retailers. But just because this emerging buying group wants to go to physical stores does not mean retailers can do nothing and expect them to show up. Instead, retail chains "need to create more interactive engagement around their brands to serve the 'always on,' mobile-focused, high-spending demographic," according to the study.

"Generation Z expects technology to be intuitive, relevant and engaging -- their last great experience is their new expectation," IBM General Manager of Global Consumer Industries Steve Laughlin said in the press release. "This presents a significant challenge for retailers and brands to create a personalized, interactive experience with the latest digital advances or risk falling behind. This kind of innovation is not linear or a one-time project -- it is a new way of thinking, operating and behaving."

Generation Z is digital-savvy, but willing to shop in bricks-and-mortar retailers. Image source: Getty Images.

What did the survey find?

The study found that 67% of Generation Z shop in bricks-and-mortar stores most of the time, with another 31% shopping in-store sometimes, which indicates 98% of this cohort shop in stores at least some of the time. The survey of more than 15,000 consumers aged 13-21 from 16 countries also found that 74% of respondents spend free time online, with 25% being online five hours or more each day.

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NRF CEO Matthew Shay explained that despite Generation Z's digital-first thinking, retailers can still win them over. Doing so, however, requires a shopping experience that appeals to a group that understands that it can buy pretty much anything with just a few clicks.

"They appreciate the hands-on experience of shopping in a store," said Shay. "With technology constantly evolving but some shopping habits remaining the same, retailers need to be agile enough to serve both needs."

Why is this important?

Shopping has steadily moved from physical stores to online retailers -- a trend that grew during the 2016 holiday season. This survey shows that while younger shoppers certainly know how to buy online, they are not opposed to going to a store. That should give retailers hope that if they create the right shopping experience, they can win some of the $44 billion in buying power that IBM and NRF say Generation Z wields.

That's a ray of hope for traditional retail, but it's not going to be an easy path. The study found that Generation Z can be a very demanding group. Over half of those surveyed, 52%, said they would transfer loyalty from one brand to another if the brand's quality is not up to par. "They care the most about retailers getting the basics right, with 66% saying product quality and availability are the most important factors when choosing one brand over another; 65% focus on value," wrote the researchers.

The fact that Generation Z sees value in leaving the house at all at least opens up a door for retail chains to find an appealing formula that works.

That's likely going to be a mixed digital and physical experience driven by the consumer. It's not a recipe that most, if any, retailers have figured out yet, but at least this report shows that finding the right mix might be possible.

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The author(s) may have a position in any stocks mentioned.

Daniel Kline has no position in any stocks mentioned. He went to the mall last weekend. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.