Why Gen Z may mean trouble for retailers

Dinah Wisenberg Brin, Special to CNBC

Asya Gonzalez may be the quintessential Generation Z entrepreneur—a 17-year-old fashion designer and e-tailer who is socially conscious.

At 13, the Denver youngster started an online fashion business, Stinky Feet Gurlz, which sells vintage-style hats that she crochets herself and T-shirts imprinted with her whimsical designs.

Sales in her home-based business now average $1,000 to $2,000 a month. Gonzalez said she deposits some of her profits into her college fund but uses most of it to support She's Worth It!, a charity she started to combat child sex trafficking and slavery.

"I've always wanted to be a fashion designer, I've always wanted to have my own clothes, my own label," said Gonzalez, who started by focusing on products that didn't require her to sew, a skill she's been learning.

Asya Gonzalez started her online fashion business, Stinky Feet Gurlz, at age 13. Now 17, her business averages $1,000 to $2,000 a month in sales.
Source: Kristin McLaughlin

Gonzalez (her first name is pronounced "Asia") and her entrepreneur brothers, Jacob, 14, and Nolan, 13, who run shark-tooth candle maker Chum Bucket Candles, are part of a trend emerging among members of Gen Z to become "me-tailers" who make and sell their own products.

These Gen Z entrepreneurs are digital natives with the ability to communicate their ideas through social media and sell their wares online rather than at craft fairs or garage sales. As these teens and their businesses and spending power grow, there are signs they may influence the way traditional retailers operate.

A generation of entrepreneurs

"As consumers, they're much more careful about how they spend their money, and they're incredibly research-oriented," said Jamie Gutfreund, chief marketing officer of Noise, a full-service marketing and branding agency focused on young consumers. Kids shopping in big-box stores will pull out an app to see if they can get a better price elsewhere, she said.

"They're an incredibly entrepreneurial generation," she said of the estimated 46 million people ages 10 to 17 who make up Gen Z.

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According to Gutfreund, there is "a bit of a perfect storm" that has forged this trend. Gen Zers grew up experiencing the Recession, 9/11, and a different sort of parenting from their Gen X moms and dads, who are now roughly between 35 and 50 years old and consider it more important that their kids be resilient than feel special. The kids also are smart about technology because it's always been part of their lives, she said.

Recent research from Noise/The Intelligence Group's Cassandra Report found that 26 percent of 14- to 24-year-olds have sold something on a resale website, 27 percent have sold their own items at a consignment store and 16 percent have sold something they made online. This age group encompasses a slice of Gen Zers and the tail-end of the millennials.

"That old joke, 'On the Web nobody knows you're a dog.' … Nobody knows that you're 10 or 12 if you take a good photo," Gutfreund said of young e-tailers.

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Some corporate retailers are picking up on the trends. The Cassandra Report noted that online retailer ASOS lets people sell new and used clothing and open their own boutiques on its ASOS Marketplace, while Urban Outfitter's Anthropologie has an online "featured artist" section that offers handmade home accessories and stories about the artisans.

Among other Cassandra Report insights on young consumers: more than half identified themselves as deal hunters, and 57 percent said they research products more than they used to before making a purchase. Sixty-three percent would like to have a product that no one else owns, and significant majorities wear a socially conscious brand and link luxury to quality. Large majorities also expressed loyalty toward their preferred technology, personal care and grooming brands.

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"I think you'll see that they're a very pragmatic group," said Jeff Fromm, co-author of "Marketing to Millennials" and president of FutureCast, a research-based marketing consultancy focused young adults.

Gutfreund echoed this sentiment, saying, "They're much more savvy about their money because they've grown up at a time when you have to be much more savvy about money."

A startling shift

They're also growing up with the sharing economy, and don't necessarily feel the need to show status through ownership—a development that Gutfreund said is affecting traditional retailers.

Consumers can post the things they like on Pinterest or Instagram, "and to them that's very close to owning the item. … You don't have to actually buy things to demonstrate what you like," she said.

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They also can rent rather than buy fashionable clothes, through businesses like Rent the Runway, and stream rather than own music and movies. It's a startling shift from prior generations, and one that raise the bar for retailers.

"The ease with which likeminded individuals can forge online connections to circumvent traditional consumption has transformed the social network into a sharing network—and, in the process, has normalized the notion that access is not just as good as ownership, but better," the Cassandra report said.

Marketers need to consider how this mindset "will alter shoppers' relationship and engagement with brands in the long term," the report said.

Young consumers' focus on product quality may be having an effect as well. Gutfreund noted that business has been soft in recent years for teen-focused mall retailers in the middle-price range.

"They're much more selective. When they want to buy something they're looking at a whole set of different factors," she said. "They're looking at value differently." Looking at how an item is made, how long it will last, and whether they need it.

Like their older millennial brothers and sisters, Gen Z kids want to make a difference in the world, Fromm said. "A lot of the youngest kids that I see creating new products and selling them online have a very clear purpose."

Source: Kristin McLaughlin

Gonzalez's Stinky Feet Gurlz, for example, has the slogan, "buy a shirt. save a child." Her website devotes a page to explaining her charity's mission of reaching girls who are targeted by sex traffickers.

Online retailer Yellowberry came to be after another teenager, Megan Grassell, became angry about the push-up bras that her 13-year-old sister was finding when shopping for undergarments.

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"This company is my effort to help other girls who feel the same way I do: that our society pressures us to look and dress a certain way at a very young age," Grassell said on her website. Her business raised nearly $42,000 on Kickstarter this year.

Fromm considers it too soon to know the effect that Gen Z entrepreneurs will have on the retail market, since the number of youngsters in that group who can think through a business model is limited.

"I think it will at some point in the future have an impact," he said, "as some of them create unique and sustainable systems."

—By Dinah Wisenberg Brin, special to CNBC