More and more, people no longer want to own stuff. And this trend away from ownership is about to accelerate. Next hour delivery, smart objects, and autonomous vehicles are going to change the retail landscape forever. We will see new players emerge, and major brands collapse. The race to evolve is on.
For several years we have seen an evolution occurring in the way people consume. Many people, particularly Millennials, now choose to merely have the ability to access products rather than buy and own them outright. They pay to access a shared resource, hence the terminology sharing economy, or access economy. I prefer the latter term, but either works. You currently see it happening in full force with cars, houses, and even clothing.
Attitudes towards ownership are changing
As has been broadly discussed in the media, it is the Millennial generation that is leading the charge towards the access economy. And Gen X’ers aren’t far behind. In fact the largest demographic using AirBnB is Gen X.
This shift in behavior is being driven by a range of motivations. For Millennials it is mostly driven by a desire for increased efficiency. The access economy is just seen as a more efficient way to use resources that are either expensive or have low utilization (the average car, for example, spends 96% of its time parked and unused). Ownership is even seen as gauche and undesirable by some Millennials. On a planet fast being depleted of natural resources and choked with pollution spewing from factories making ‘stuff’, the access economy is seen as a much more sustainable path.
In a 2014 survey by Goldman Sachs, half of U.S. Millennials said they don’t plan to buy a car. Ever. And in a survey by the Cassandra Report, over a third of U.S. Millennials said they would prefer to pay full price to access a product rather than own it. To some people reading this post, particularly Gen X and Baby Boomers, that fact might seem mind-blowing and dumb, but attitudes to ownership are very different in younger people. And no, it’s not just driven by the great recession and under-employment amongst Millennials. They may have had to learn to share rather than own for economic reasons, but they now view this model as being the way forward, regardless of their future economic fortunes. They will spend their hard-earned cash in other ways. Service and experience industries will benefit.
Technology and business innovation are making consumption more efficient
Consider how production, distribution and consumption have changed over the last two hundred years. The industrial revolution improved the efficiency of production using mechanization, electrification, automation, and mass production techniques.
The retail revolution that started in the early 1900s (thanks Mr Selfridge!) brought us packaged goods, branding, self-service, merchandizing and then home delivery. The Internet brought us online shopping from the comfort of our couch. All of these innovations vastly improving the efficiency of distribution as buyers were matched with sellers.
Now, technology is poised to radically improve the efficiency of consumption. Business innovation, enabled by digital technology, is removing waste from the process of consumption. This creates a massive impending disruption for retailers and manufacturers. Once we start to share things, we need a lot less of those things. And the people buying those things are no longer consumers. Manufacturers may quickly find that their customers now become other companies; companies that broker all of the sharing. Either that or they get into the sharing business directly themselves. Retail, at least in some segments, could be left without a meaningful role at all.
A mature market trend, for now
Are these attitudinal shifts global in nature? Not likely. They seem to hold true for US and Europe, and probably Japan. But not yet for China and some other emerging markets; Here ownership is still an important symbol of success and a component of personal identity. Objects still serve this purpose in western societies, but some categories of product that are seen as utilitarian (like camping equipment etc.) are definitely shifting quickly towards sharing. Check out Gear Commons if you need some outdoor gear.
Simplification is also driving less ownership
Life simplification is a secondary motivation for reducing ownership, particularly in more wealthy families. This is again not a great trend for retailers and manufacturers.
In a 2014 survey of shopper intent, in US households earning more than $65,000 a year, about a third of those surveyed say they intend to spend less next month than this month. Interestingly, about 40% of those people said that the reason for buying less was not financial, but because they wanted to simplify their lives. This is a trend to watch closely. There’s something important going on here.
Spending is shifting from products to services and experiences
So what are people doing with all the money they save by buying less stuff? They are increasing their spend on services and experiences, and in particular on experiences that create meaning and memories.
Retailers and manufacturers need to shift quickly, or die
What does this mean for retailers and manufacturers? It means they need to look closely at their business model, at their offerings, and start to find ways to shift their business strategy to embrace selling services and experiences around products. Clothing can become “wardrobe as a service”. Food can be delivered to homes as a service. Look at what startup Blue Apron is doing in that space. I just started using their service and so far I love it. Electronics can be delivered as a subscription. Some big box retailers have already started experimenting in this area with home theater as a service.
Ever-shrinking computing creates opportunity
There is good news here. As the cost of computing drops it’s cheap and easy to make objects smart and connected. And ‘smart’ is a way to create turn products into services and build a service revenue stream.
I’ve written in a previous post about a smart teddy bear. Once objects become smart and connected you can monetize them in different ways. Instead of being things people buy, they become gateways to a set of services people subscribe to. In the case of the smart teddy the service is reading a book to a child. Adding intelligence and connectivity to products will enable manufacturers (and retailers) to build service businesses and annuities that capture where consumer’s spending is heading.
New tech = fast delivery = more sharing
Fast delivery is coming. Soon. Consumers already expect two-day delivery as the norm. Same day delivery is already in trials in major markets. Next hour delivery is coming soon, and will become a consumer expectation within the next several years.
In an era of next hour delivery, the access economy becomes even more attractive. Immediacy comes from delivery speed rather than ownership. Why own a toolkit for that rare occasion you need to hang a picture on the wall when you can have a hammer delivered to your door in 40 minutes?
Autonomous machines and sharing are a match made in heaven. Once a low-cost, driverless taxi can come to your door and take you anywhere you want to go, on demand (or even better, is waiting for you when you need it, having used predictive analytics to anticipate your need) your reasons to own a car diminish.
Who goes first?
When I talk to retailers they all know the access/sharing economy is coming. And they know it’s coming to their business sector next. But nobody wants to go first. Why would they?
The shift to access economy, by sector, will occur like a dam breaking. Once somebody goes, everyone will have to follow. Quickly. In my discussions with retailers, they all know that. So who will go first? Easy answer. It’ll either be a disruptor coming from the outside, like Amazon. Or it’ll be a retailer that has their back against the wall and nothing to lose. In a last ditch attempt at relevance, perhaps we’ll see a Sears, a J C Penney, or another challenged brand take the plunge and embrace the access economy as a way to reimagine themselves and restore their relevance.
It’s going to be interesting to see how this plays out.