According to a new study from Deloitte the retail apocalypse is a myth. Instead, they believe retail is changing in line with consumer income bifurcation.
Their key finding is retailers serving higher-end and price-conscious customers are doing well and opening new stores, while retailers targeting middle income customers are struggling and closing stores.
They even found that despite all the noise about store closures, thanks to the growth of high and low end retailing more brick and mortar stores have opened over the past 5 years than closed.
The chart below is from Quartz's This is the real story of American retail, which covers the study. It shows that revenues of higher-end and price-conscious retailers grew 81% and 37% over the past 5 years. Revenue for those in the middle grew only 2%.
The reason for this bifurcation is growing income inequality. Key quote from the study press release:
“Households have diverged along economic lines and now people’s respective income levels are steering their behaviors and dictating the success of retail segments,” said Robert Stephens, senior manager, Deloitte Consulting LLP and co-author of the study. “More affluent shoppers have fueled high-end retail as their income and net worth have grown, while lower-earning consumers, faced with growing expenses and dramatically less disposable income, have turned toward price-conscious stores. Retailers that try to court all consumers will likely be challenged as income bifurcation leaves different shoppers with differing motivations.”
And the report quantifies this:
For the past 10 years, the lower 40 percent income group has found itself struggling to keep up with expenses, while the middle 40 percent has seen its income shrink. Thus, for 80 percent of consumers, the last decade has generally represented a dramatic worsening of their financial situation. Income and net worth gains are disproportionately going to the highest-income group.
That income inequality is significant and growing is hardly a new insight. But the Deloitte report nicely illustrates how it's changing the retail sector.
It also helps explain why so many Americans are turning to the gig economy to supplemental their income.
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