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POPULATION PATTERNS: WHAT’S IN STORE

SMART RETAILERS ARE PLANNING TODAY FOR TOMORROW’S DEMOGRAPHICS CHANGES

By Curt Hazlett

Scenes from the mall, 2015: The paunchy, gray-haired sales clerk at Abercrombie & Fitch shows you a selection of relaxed-fit chinos while soft jazz plays in the background. Later, you buy a new laptop (for $79) without so much as seeing a cashier — a radio-frequency chip puts the charge on your Visa card. On your way out, you stroll past the massive Rite Aid-MegaHealth department which took the place of the old department store anchor a few years back.

All right, things may not be quite that different eight years from now — but don’t bet on it.

Demographics changes are about to radically reshape retailing. The number of people in the U.S. age 65 or older will double over the next 25 years, according to the Census Bureau; by 2030 about 20 percent of the population (72 million Americans) will belong to that age group. One especially startling statistic: People 85 or older are the fastest-growing segment of the U.S. population.

The story is much the same in Britain, Japan and other industrialized countries, though many emerging nations are turning the trend on its head. In India 31 percent of the people are 14 or younger, and by 2016 a whopping 91 percent will still be under 59. In Brazil the median age is 28, versus 36 in the U.S. and nearly 40 in Britain. And there is in fact a “youth bulge,” a high proportion of people between 15 and 29, in the Middle East, Africa and South America.

All of this promises big shifts for retailing. In Western countries, there will be fewer young people to work retailers’ sales floors, and more of those retailers will be targeting older consumers. In developing nations, by contrast, the growth of energetic younger generations is likely to spur the development of dynamic retailing economies.

In its Global Retail Predictions report for 2007, Deloitte Touche Tohmatsu notes that the demographic mix of the past decade — plenty of prosperous baby boomers and a good supply of entry-level job candidates — helped retailers by keeping labor costs down and boosting consumer spending. But this is changing, the consulting firm says. “First, the population between the ages of 50 and 70 in mature markets will explode, shifting consumer spending even further from goods and toward experiences and services,” the report says. “Second, modest growth in the population between the ages of 20 and 35 will make it difficult to hire entry-level workers. At the same time, the decline in the population between the ages of 35 and 50 will make it challenging to hold on to middle and upper management.”

Meanwhile, retailers in developing markets will benefit from an ample supply of workers, the report says. “The demographic shift in the next few years will produce strong developing economies that are more dynamic and risk taking, and as such will grow much faster than their developed-world counterparts.”

“The impact [in the U.S.] will be seen on both the demand side and the labor-force side,” said Carl Steidtmann, chief economist and director of Deloitte’s consumer business research unit, in an interview with SCT. “You’ve got a huge segment of the population that is going to go into retirement and a very small segment that is going to go into the labor force, so I think a lot of retail businesses will face severe labor shortages and will have to look for nonlabor solutions to providing service.” As a result, more retailers will focus on Internet sales and delivery and on in-store automation, he says.

Steidtmann pointed to drugstores as an example of a retail segment that could benefit from the graying trend. “Drugstores could stop thinking about being in the drugstore business and think instead about being in the health-delivery business,” he said. “That really changes the model. The aging of the population will result in a substantial shift in spending toward health care and things that are medically related, both goods and services. There is a whole host of health-related services that can be delivered within the drugstore setting.”

Could the era of drugstore anchors be upon us? In the short run, the shift may also help home-related retailers as more retirees buy and furnish second houses, Steidtmann says. And yet the home furnishings trend will not last, he cautions. “Once you get beyond 10 years, the demographics will tend to move against them fairly dramatically,” Steidtmann said. “Then you’ll get very small household growth, and a lot of those [two-house] families will begin to downscale dramatically.”

As 2015 approaches, the boomers “will have new needs, driven by smaller households, increased emphasis on health and general welfare, and increased service demands as ‘help me’ replaces ‘DIY’ [do it yourself],” says a TNS Retail Forward analysis titled Retailing 2015: New Frontiers.

According to the U.S. Bureau of Labor Statistics, demand for retail cashiers and sales staff is expected to grow by about 13 percent by 2010. Yet the percentage of the population between the ages of 20 and 44 is expected to fall to slightly less than 34 percent from 37 percent in 2000. That seems certain to make hiring even tougher than it already is, says Victoria Juda, a retail staffing consultant at DeBellis, Catherine & Morreale, a corporate staffing firm in Williamsville, N.Y. “Employers will have to focus on retaining their middle-management employees and developing them into higher-level management positions, but they’ll also have to educate the lower-level employees,” said Juda, who has recruited for Home Depot and Bed Bath & Beyond. “They’ll have to develop much more aggressive recruitment tools to reach students in colleges and find new associates.” There will also be a need for more-creative benefit packages and flexible scheduling that would appeal to older employees, she says.

The fact that fewer older people will want to leave the work force entirely may help alleviate the shortages, however. Instead of turning to 20-somethings to fill sales associate jobs, more retailers are likely to see value and flexibility in the semiretired — though in truth you probably will not find these people working the floor at Abercrombie. “There will always be ways to fill stores with both customers and employees,” said Daniel J. Howard, chairman of the marketing department at Southern Methodist University’s Cox School of Business. New immigrants, for instance, are likely to take advantage of employment opportunities, he says. “You’re going to have to have new technology, and you’re also going to have to make the jobs more attractive.”

One technology that is expected to make retailing less labor intensive is radio-frequency identification, or RFID, which tags merchandise with serial numbers and that are read automatically as the merchandise moves through the company’s infrastructure.

It is easy to think that the future of retailing lies in e-commerce, and there is no doubt that online shopping will continue to gain popularity. But even Jeff Bezos, the visionary entrepreneur who created Amazon.com, believes that e-commerce will account for just 15 percent of the overall retail market by 2016, up from 2 percent today. People will always like to physically go shopping, he says. “We are physical creatures, and we like to move around in our environment,” Bezos told a technology gathering in Seattle in May 2006. Even so, technology will force retailers to get far better at what they do, he says. “In the old world, perhaps the person with mediocre products and services could win if they were the best at shouting about those services,” Bezos said. “I think that that will become an increasingly difficult formula as time goes forward.”