HOW GEN Z HYPEBEASTS ARE SHAPING SHOPPING

Gen Z hypebeasts have been a driving force behind the popularity of ‘buy now, pay later’ schemes and luxury mystery boxes. But why exactly are these services so appealing to the young and affluent? And how can brands adapt their offerings to attract these shoppers in a crowded online marketplace?

Location United States

Featured Experts

Andrea Richeson

Andrea Richeson is a New York-based consumer anthropologist who specializes in youth culture and brand fandoms.

Ambrose Cooke

Ambrose Cooke is the COO and co-founder of Fanbytes, an award-winning Gen Z marketing agency.Featured in Forbes, The Times, and The Daily Mail, the award-winning company has gone on to help brands like Nike, Apple, and even the UK Government to reach Gen Z on popular social platforms such as Tiktok, Snapchat, Instagram, and YouTube.

Jesse Caesar

Jesse Caesar is an insights specialist and moderator who brings the customer into focus for companies across an array of sectors. At Jesse Caesar Consulting, he develops bespoke research and brand-building solutions for global leaders, start-ups, creative agencies, and other research firms.

Author

Lara Piras

Lara Piras is a writer, researcher and brand strategist based in London. Considered a youth culture expert, her vast industry knowledge comes from working with some of the industry’s best including The Future Laboratory, MTV, WGSN, Vogue UK and Vogue US in New York. She has previously worked on brand projects for Nike, ASOS, Facebook, Westfield, IKEA and Peroni.

Highlights & Data

Canvas8 Member : larapiras@gmail.com

As well as offering Gen Zers financial flexibility and instant access to luxury products, ‘buy now, pay later’ services can help retailers reduce cart abandonment

Gen Zers want to buy from brands that reflect their identity, with some turning to online brand communities and IRL events

Around 49% of people will spend more when using ‘buy now, pay later’ service than they would if shopping with a credit card (Cardify.ai, 2021)

54% of Gen Zers claim they’d be willing to spend an extra 10% or more on sustainable products (First Insight, 2019)

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to connect with like-minded people

Mystery boxes give buyers a unique unboxing experience and can introduce them to new brands, while also preventing deadstock from going to landfills

84% of Highsnobiety readers define themselves by their style, and 85% believe what their clothes represent is just as important as the quality or design ( Highsnobiety, 2018)

Scope

The luxury goods market in the US – which is worth nearly $72 billion and is expected to grow by 3.1% annually through to 2025 – is fueled by FOMO, leading many buyers to use ‘buy now, pay later’ (BNPL) schemes, gamble with Heat mystery boxes, or save with digital wallets such as Cashmere to procure must-have items. [1] With mystery boxes, people don’t even know what products are inside – but they’re aware of the kinds of brands they’re gaining access to. These labels, which are often within the streetwear sphere, make up a significant part of a shopper’s identity – and people, especially Gen Zers, are finding creative ways of engaging with the products as a result.

“Gen Z is the Kinder Egg generation. They grew up watching kids on YouTube open up chocolate eggs and toys,” says Andrea Richeson, a New York-based consumer anthropologist. “The same curiosity and thrill they used to have watching these videos can be applied to their interest in luxury mystery boxes.” [2] She notes that this theme is hugely popular in Asia, where some consumers take their chances with $80,000 Lucky Lucky Bags in the hope of winning luxury apparel, cars, and even experiences. [3] “[American] brands unload discontinued items at the end of the year as a way to offer great discounts on luxury accessories and offer fans a little bit of intriguing random indulgence,” Richeson adds. “In many ways, it’s like getting a present! Splashing cash on brand mystery boxes plays three important roles in this buying experience: offering the thrill of surprise, acting as great content for social sharing, and as a valuable source of items for the brand fan P2P marketplace.” [2]

There’s a desire for instant purchasing that’s rising up throughout the US shopping landscape. Amazon Prime and Drizly are key players in this space, but they’re being rivaled by the likes of Gorillas. This Berlin-based start-up is an on-demand grocery delivery platform that has raised $44 million in Series A funding. The point of difference lies in the fact that it caters for 'emergency' shopping situations – for example, when someone is missing one key ingredient – all made possible by its hyper-local fulfillment centers. [4] It epitomizes a ‘now, now, now’ attitude that’s been fostered by advances in e-commerce, and with the number of online buyers in the US predicted to hit 278 million by 2024, digital retailers face mounting pressure to deliver instant gratification.[5]

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BNPL offers flexibility and instant access

Jesse Caesar, a youth insights specialist, believes BNPL schemes are changing young people’s attitudes to money and investment. “Gen Z shoppers are becoming pretty sophisticated,” he says. “Recession-reared and entrepreneurial, they’re stacking and saving more of their money and taking advantage of a growing number of youth-oriented financial literacy apps.” [6]Zogo is a prime example. Built by Gen Zers for Gen Zers, it aims to make financial education more fun and engaging for young adults. So, what does this mean for cult luxury? “There is this tension between

frugality and an aversion to personal debt among Gen Z, and also being entirely vulnerable to limited-time-only luxury drops and whimsical (yet hard-earned) indulgence,” says Richeson, adding that for brands playing in this space, it’s all about creating a sense of hype and discovery. “If brands, particularly challenger brands, are able to take advantage of current trends and show themselves as pioneers, be it [through] mystery boxes or BNPL offers, then they will be rewarded with raving fans.” [2]

“For Gen Z, BNPL payment options are not so much about whether or not they can afford a coveted luxury item, but a paradigm shift in the way young people prioritize and reshuffle their spending,” says Richeson. [2] Young HNWIs are increasingly using BNPL services such as Klarna and Clearpay to buy their first luxury purchase. Although they have the funds to buy the product outright, BNPL is a convenient way to spread costs and avoid parting with a large sum of money at once. What’s more, according to research from Cardify.ai, roughly 49% of people spend more when using BNPL than they would if shopping with a credit card, hinting at how this purchase method facilitates splurging. [7] Indeed, while 34% of BNPL users are purchasing ‘needed’ goods and services, 66% are splashing out on ‘wants’ such as jewelry and vacations. [8]

“The consensus is about payment flexibility and keeping capital accessible,” says Richeson. “Payment options like BNPL seem like a relatively sound and economical option and help justify purchases, as long as there is a trade-out – i.e. ‘I’ll put this monthly payment towards these amazing shoes, but I will watch my spending elsewhere. I’ll eat all my meals at home, I’ll put my streaming service on hold for a few months, or I’ll walk more instead of using a ride-share service.’” [2]

The Bank of America projects that the market for BNPL services will grow 10- to 15-fold by 2025, at which point they’ll process up to $1 trillion in transactions. [9] Geoff Staff, the VP of retail and e- commerce for Delta Galil Premium Brands, suggests that this wider uptake will not only be good for customers – offering them instant gratification and more affordable ways to access goods – but could also help retailers reduce cart abandonment. [10] Data from March 2020 highlighted that 88% of online carts were abandoned, but BNPL has the potential to lower these rates through the promise of payment flexibility. [11] “I think the biggest change [for fashion] is you have seen [BNPL] move from mass- and mid-market to [higher-tier] brands,” says Staff. “Why would mid-market, maybe even down-market, [companies] have a payment plan versus more aspirational products at a higher price point?” [10]

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From phones to furniture, young people are used to paying in installments William Fortunato (2020) ©

Young people crave luxury that signals their identity

Mystery boxes allow people to spend a set amount of money to receive goods from a trusted curator – and Gen Zers are hooked. They want to get their hands on luxury brands that they believe embrace and embody aspects of their identity, regardless of what the items are. On Etsy alone, there were 495,000 searches for ‘mystery boxes’ between January and July 2019, highlighting the appeal of serendipity in shopping. [12] Luxury-focused players in this space include Heat, founded in London in November 2019, and Scarce, launched in New York in December 2020. Both provide boxes filled with surplus stock from sought-after brands such as Moncler, Balenciaga, and Off-White.

Aside from the size and gender orientation of the products, shoppers are unaware of what will be in any given box, and they often don’t care. “Gen Z is embracing the thrill of mystery boxes because they provide a sense of value, variety, and a unique IRL experience,” says Caesar. “Every unboxing is cultivating loyalty through surprise and delight, and engaging these new customers in an ongoing dialogue.” [6] Ambrose Cooke, the co-founder of influencer marketing agency Fanbytes, thinks mystery box culture goes against other Gen Z consumer attitudes such as conscious, careful shopping and curating their wardrobes. “It shows that Gen Z doesn’t care as much about the product, design, or journey of how it was made, and care more about the brand name and how wearing that brand shapes their identity,” he says. [13]

Heat claims that only 10-15% of its boxes are returned, and if shoppers choose to do so, they must return the whole box and pay shipping costs. [14] This may explain the huge commercial potential in this model, because as well as the excitement of taking such a risk, there’s more chance of the purchaser liking or loving at least one of the items, making a return less likely. Caesar believes it’s young people’s consumer consciousness that’s luring them into this shopping culture: “Gen Z

cares about systemic issues, so talking about sourcing and sustainability can turn deadstock into a coveted virtue.” [6] Heat itself recognizes how its model chimes with young people’s environmental priorities, stating: “Due to the unpredictable nature of the fashion industry, there is often a surplus of products from past, current, and exclusive collections which are either sent to landfill, incinerated, or heavily discounted. Our service provides brands with a sustainable channel to avoid these outcomes while preserving brand values.” [15] With 54% of Gen Zers willing to spend 10% or more on sustainable products, even high-priced mystery boxes are seen as worthwhile for their eco credibility. [16]

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Mystery boxes lure young buyers in with the prospect of a rare find Liza Summer (2020) ©

The importance of online brand communities

Digital brand communities are increasingly shaping young consumers’ identities. According to research published by Highsnobiety in 2018, 84% of the site’s readers define themselves by their style, and 85% believe what their clothes represent is just as important as the quality or design. [17] Pre-pandemic, streetwear aficionados were making friends online based on similar interests and meeting each other at IRL brand events, like pop-ups and queues for exclusive drops from brands such as Supreme, Fear Of God, and Palm Angels. “Gen Z brand fans are carving out smaller, close-knit communities of like-minded individuals on platforms like Reddit, Instagram, TikTok, Facebook Groups, and Discord to share information and gossip on future product releases, celebrate and commiserate on whether they have copped a drop,” says Richeson. “They’re establishing their own informal buy, sell, and trade marketplaces outside of eBay, Mercari, and Depop.” [2]

These ways of connecting are shaping a new culture around purchasing, where content and community are increasingly important to the brand experience. “COVID-19 has accelerated brand fandoms’ importance in the shopping journey,” says Richeson. “These communities, for the good and bad, can act as echo chambers. The collective excitement about these products, especially when they are limited and exclusive items, can very easily lead to an unstoppable hype train, creating a euphoric buying frenzy and scalpers market.” [2]

The 2019 True-Luxury Global Consumer Insight study hinted at the outbreak of such a streetwear buying frenzy, finding that 56% of Gen Z luxury shoppers had partially shifted their spending from traditional luxury brands to premium, fast fashion, niche, and sports brands. [18] “ Digital fandoms are creating exciting new retail opportunities,” says Richeson. “As young people spend less time

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at shopping malls and hanging out in person, connecting with brand fan communities online and IRL can play a vital role in developing life-long brand relationships through in-person meet-ups and conventions and pop-up stores that create unforgettable experiences for their most loyal and influential fans.” [2]

Wearing a hyped brand is an identity marker for many Gen Zers Rodnae Production (2021) ©

Insights and opportunities

BNPL creates more flexible access to luxury goods

When buying is so hype-driven, what is a brand’s responsibility in fostering financially sound shopping patterns? “Brands should be mindful and seek trusted platforms to partner with for BNPL services,” says Cooke. He notes that platforms like Klarna and Clearpay give shoppers a maximum credit score, taking into account factors like time of day, size of purchase, and, “probably most importantly, how much they have used the Klarna platform. As people gain more experience, they can use it more. This, with the addition of emotional and impulse controllers – which could be as simple as a pop-up window reminding people of what they are agreeing to when they defer payments – would be sufficient.” [13] Alex Marsh, the head of Klarna UK, says that the company doesn’t profit from customers defaulting on their repayments and that its revenue comes from retailers paying for customers to use its service. [19] To heighten awareness of the negative impact of the new credit culture, Klarna launched Mindful Money, a blog focusing on educating customers about their finances, with pieces such as ‘ Overcoming financial anxiety’ and ‘ What affects your credit score’.

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Product is just one part of the mystery box experience

As reported by The Wall Street Journal, a luxury mystery box costs around two to three less than the retail price of all of the individual items contained, showing this shopping model’s commercial viability for both buyers and sellers. [20] “The big win here is giving brands the opportunity to offload items that aren't selling well,” says Cooke. “Beyond that, mystery boxes allow you to rebrand items as ‘cool’ even though originally they weren't selling well. It also perhaps gives an opportunity to create more awareness, hype, and UGC around less well-known, upcoming brands, or brands trying to elevate or launch into new markets.” [13] He references an interview with Heat in Drapers, in which the founder said they planned to develop boxes in partnerships with key influencers in the future. [21] “You can imagine how successful these boxes will be when you can shop the box of your favorite streetwear influencer/tastemaker and they tease which items you could have the chance of getting,” says Cooke. [13]

Creating the thrill of discovery in the e-comm era

Gen Zers are looking for brands to help create a sense of discovery – one that contrasts the ease of online shopping today. Memorable mysteries and surprises will be a key strategy going forward, suggests Caesar. “Gen Z builds status through experiences over conspicuous displays of wealth, so memorable moments – from mystery boxes to pop-up shops and events – are compelling ways for brands to reinforce luxury,” he says. [6] The surge in thrifting is just one example of how young consumers are seeking novel shopping experiences. And as the second-hand apparel market grows (it’s expected to be worth $64 billion by 2024), vintage dealers and brands with extensive style histories may draw people in with the offer of one-of-a-kind products and experience.[22]

Tap into novelty, exclusivity, and discovery

High-level engagement online is especially important for streetwear brands and cult collaborations with luxury labels. Some e-commerce retailers are getting ahead of the game by creating immersive, digital recreations of physical retail spaces. Hip-hop, streetwear, and pop culture magazine Complex created ComplexLand in December 2020, a five-day virtual shopping festival in place of its IRL ComplexCon event. Avatars, branded in-game shops, and real-life street food delivery engaged and enticed attendees. “The luxury brand sector can keep things fresh by tapping into their brand fandom’s penchant for novelty, exclusivity, and discovery,” says Richeson. “By offering their most dedicated fans exclusive product drop sneak peeks and purchase opportunities (ideally that keep the shopping bots out), creating fun online and IRL events where they can meet the creatives behind their favorite products and collaborations, and even exploring a product-based loyalty program, luxury brands will undoubtedly be able to create a relationship that lasts.” [2]

Sources

1. Statista (2021)
2. Interview with Andrea Richeson conducted by the author 3. Live Japan (December 2020)
4. TechCrunch (December 2020)
5. Statista (July 2020)
6. Interview with Jesse Caesar conducted by the author
7. WWD (February 2021)
8. WWD (January 2021)
9. Yahoo (December 2020)
10. PYMNTS (February 2020)
11. Statista (March 2020)

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12. Vox (August 2019)
13. Interview with Ambrose Cooke conducted by the author 14. Canvas8 (January 2021)
15. Packaging World (August 2020)
16. Forbes (January 2020)
17. Highsnobiety (2018)
18. Forbes (March 2019)
19. Citywire (August 2020)
20. The Wall Street Journal (January 2021)
21. Drapers (September 2020)
22. Statista (August 2020)

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