Millennials are having their moment in the sun — not to mention the store — as retailers have stepped alongside the media and politicos to clamor for the buying power of the current generation of young adults. But while the latter two categories have a pretty straight line to walk for millennials’ attention and votes, respectively, what many players in the commerce space have miscalculated is the generation’s desire to buy versus rent.
Built into the mindset of the last generation to be born in the 20th century is a distinct set of economic values, first shaped by the Internet boom of the mid-1990s in which youthful first-time CEOs and a new technorati class became rich overnight, startup culture replaced careerism, and hard work was replaced by blind luck as a driving factor in success. Millennials’ ethos related to money was then forged by the recession of the late aughts that saw job security, pensions and retirement plans vanish from the American landscape at a critical moment in their own emergence into the job market. As a result, members of the millennial class have a low net worth and a high standard of living. The solution to addressing that dichotomy is a pretty clear one: rent your experiences, don’t own them.
Signs of a shifting economy have been strongly evident in the U.S. housing market, which saw a 5 percent decline in the number of new homeowners, down to 33 percent in 2014. Between 2007 and 2013, the U.S. added only 200,000 homeowners in total, while rental tenants grew by 6.2 million. And a tough job market for emerging millennials also led to an increase in the number of 18-to-34-year-olds moving in with their parents, an incident rate that rose to 31 percent from 27 percent pre-Great Recession. What this all adds up to is that home ownership – which had been a signpost for a strong economy and the rise of the middle class since the post-war suburban housing boom of the 1950s – is no longer the clear sign of prosperity that it once was.
If millennials are buying anything, it’s into the idea that renting is an easier way to access the high-end experiences they not only want but also believe they deserve — regardless of whether they can actually afford them.
As this young generation comes into its own buying — or, more accurately, renting — power, an opportunity is appearing in the marketplace. To succeed in the new rental economy, companies need to be smart about providing luxury experiences for millennials as well as benefits to parties on both sides of the rental paradigm.
Services like Airbnb have shaken up the hospitality industry and found new sources of income for renters where they didn’t know they had it. Although the company has encountered some speed bumps related to property damage and ongoing legal battles in cities around the globe, Airbnb is booming. Whereas many travelers’ options once were limited to expensive resorts and pricey hotel real estate, the property rental service has made exotic vacations a greater possibility for a larger number of people.
Uber, of course, changed the way people catch a ride and allowed car owners to subsidize their incomes. The platform’s ease of use and simple UI made nearly everyone feel like an early adopter on the consumer side. The company also made smart moves early on to hold its drivers to high standards and ensure that the experience for both the passengers and drivers remained an elite one — a must-have element of the rental experience desired by millennials.
Rent the Runway, whose motto is “never wear the same dress twice,” launched a clothes-sharing service that gives fashionistas the experience of wearing coveted designer duds in 2014. As its business boomed, the company became the largest dry cleaner in the U.S., caring for an inventory of more than 65,000 garments and providing skilled labor jobs to hundreds of workers. Although Rent the Runway sells off its used dresses in sample sales and on its site once a garment has passed its prime, the savvy operator makes every effort to keep a gown in rotation as long as possible to earn more revenue per piece of clothing.
So how do retailers, who live and die by their sales figures, compete?
Established players like Gap and J.Crew have publicly stumbled in their attempts to respond to millennial consumer behavior. J.Crew misguidedly cut corners, thinking millennials would continue to pay increasingly higher prices for their sweaters as the quality of their knitwear took a nosedive. The brand faced harsh criticism — with the hashtag #revivejcrew trending — as its market share declined. Gap suffered an identity crisis as it diluted its brand to try and appeal to a wider range of shoppers but only succeeded in confusing their core audience and driving them to their down-market concept Old Navy.
Birchbox, on the other hand, is an example of a company making smart moves to capitalize on the new rental economy, playing on the desire for a “free trial” experience as an entryway to later purchases. Focused primarily on high-end beauty products, Birchbox sends subscribers a delightfully designed box full of trial-sized designer goodies monthly. Along with trial-size skin toners and perfumes are discounts and bonus coupons to make full-size purchases of the products with which it hopes the subscriber has fallen in love.
The lesson for retailers? As millennials continue to get a certain amount of their consumerist need met by the new rental economy, established brands can compete by providing exclusive experiences and building pathways to ownership of high-end, well-crafted, luxury items that still hold appeal for millennials — and perhaps generations beyond.