Report: DTC Brands Outperform Traditional Retail, Win Over Gen-Z

This post is the latest in our “Disrupting Retail” series. It’s our editorial focus for the month of July, including topics like in-store innovation and Amazon’s moves. See the rest of the series here. 

As the millennial generation settles down and moves into its 30s, retailers are looking at a new group of consumers as the most coveted demographic. Generation Z—born between 1994 and 2002—is forming its own identity and seeking out different shopping experiences than its older counterparts.

A new report, released by the location intelligence platform Ubimo, finds that Generation Z shows a surprising preference for physical stores, although members of this group aren’t interested in shopping so much as experiencing new products in-store.

Nearly two-thirds of Generation Z shoppers say they want to touch, feel, and experience products before making purchases, and as many as 80% say they actually look forward to shopping in physical stores. Thirty-eight percent say finding the exact products they want online can be difficult, and 35% say they don’t feel as comfortable with online transactions as older generations.

Ubimo’s findings should be music to the ears of traditional retailers, who have struggled over the past decade to match e-commerce competitors on price or product selection.

“E-commerce has freed brick-and-mortar stores from what they were traditionally required to be. Now that people have the option to buy, compare prices, read reviews, and more, all online, brick-and-mortar retailers can and must focus on creating memorable in-store experiences,” says Ran Ben-Yair, Ubimo’s CEO and co-founder.

The online world of shopping can be great, but Ben-Yair says it lacks one huge thing that Generation Z is looking for — truly immersive physical manifestations of a brand, its story, and its ethos.

One area of retail that’s hitting the right notes, according to Ubimo’s research, is direct-to-consumer. Brands like Glossier, Casper, and Warby Parker have already started shifting their strategies to meet the demands of Generation Z. Although many of these companies were born online, they’ve since launched pop-ups and other physical retail experiences specifically designed to target younger shoppers.

Using its own Polaris location-based platform, Ubimo analyzed four digital native companies—Amazon 4-Star stores, Casper, Everlane and Warby Parker—and tracked how their physical locations performed with Generation Z. The analysis found that the new DTC stores aren’t drawing tons of millennials, but they are bringing in Generation Z shoppers. The four DTC brands tracked by Ubimo saw an average lift of 45% among Generation Z shoppers, while millennials only accounted for 1% of lift.

“The youngest generation wants experiences in the real world, but their world is inherently different than that of previous generations,” Ben-Yair says. “In order to meaningfully engage with Gen Z, we have to understand their craving for experiences and connect with them in the ways they are expecting of us.”

Ubimo also analyzed efficiency, or the foot traffic a store manages to attract, comparing DTC brands with long-time industry giants. Looking at Casper and Mattress Firm, Ubimo’s analysis found that Mattress Firm draws only 12% of the foot traffic that Casper stores do.

Lenscrafters draws 80% of the foot traffic that Warby Parker stores do. Warby Parker has steadily been increasing its physical presence, having opened its first pop-up locations back in 2011 and its first permanent brick-and-mortar retail store in 2013. Today, the company has nearly 100 locations across the country.

As a best practice, Ben-Yair says traditional retailers can, and should, start using their stores as showrooms to illustrate the story of their brands with customers, and they should train sales associates on how to interact with customers.

He also says retailers need to take a cue from Generation Z and stop making a distinction between the physical and digital worlds. Generation Z views it all as one single, unified experience.

“That ability is unique to the real world and [direct-to-consumers] who understand digital limitations are creating real-world experiences to complement their existing online experiences,” Ben-Yair says. “DTCs adjusted to the shifting needs of their target customers quickly and effectively by creating memorable in-store experiences to immerse their customers and create real, lasting connections with them. That’s what traditional retailers need to learn how to do.”

Stephanie Miles is a senior editor at Street Fight.