(Photo by Paul Hennessy/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
In true Dickensian fashion, this retail holiday shopping season looks to be a tale of two cities. The idea that retail has been bifurcating-that companies, particular product sectors and consumers alike are experiencing increasingly polarized outcomes-is hardly new. I began writing and speaking about this trend many years ago and teased it out further in my new book. Deloitte and others have also called attention to this dynamic in recent years.
As has been true of so many things we’ve experienced during the Covid economy, the pandemic accelerated this phenomenon, further increasing the gulf between the have’s and have not’s. Moreover, many countries across the globe are experiencing a frightening surge in Coronavirus cases, hospitalizations and deaths. With any meaningful mitigation from vaccines still months off-and uncertain prospects for significant additional governmental relief-the gaps outlined below will likely only widen.
Consumer fortunes. In many developed nations the rich have been getting richer, while middle and lower income folks have struggled to keep up. The pandemic has tended to make this divide worse, as the stock market has hit new highs and many real estate markets are doing quite well. In addition, many individuals and families are spending a lot less on travel, fashion, eating out, commuting and the like, which leaves the more affluent with even more discretionary income than before.
At the same time, high levels of unemployment have hit families that can scarcely afford any economic disruption. Sadly, in the US and many other nations, a shocking number of families are going hungry.
Category specific spending. During the first six months of the coronavirus crisis, aggregate consumer spending was surprisingly robust, much of which can be attributed to massive government stimulus. Most interesting, perhaps, is how consumers are reallocating expenditures, in many cases dramatically.
Some of this is pure substitution, driven by spending more time at home (groceries instead of dining out, purchasing fitness equipment vs maintaining health club memberships, streaming entertainment rather than heading to the movies or concerts). Spending on more upscale apparel and accessories is way down as there is no point in getting dressed up when there is no place to go. At the same time, many are upgrading their home environments, establishing or improving home offices and investing in various home projects.
Overall consumer spending looks to be much more contracted in the months ahead and bigger ticket purchases are likely to moderate. The divergence in category spending is likely to persist until well into next year, benefitting retailers as diverse as Best Buy, Target, Lululemon and Tractor Supply.
Individual retailer performance. Several factors have distinguished the widely disparate performance among retail brands. Most obvious has been whether a company sells mostly “essential” products or not. Sales at grocery stores and mass merchants continue to greatly out index all of retail.
A second factor is whether their inherent product mix lends itself to digital commerce. Products that are “bought” rather than “shopped” for translate more to online shopping or digitally enabled store purchasing and pick-up.
Lastly, some retailers benefitted from the good fortune of being in the right place at the right time given how spending is being distorted. If you are in the business of selling office equipment or exercise bikes you’ve often had more business than you can handle. If you are about outfitting folks for special events or vacations, not so much.
Tractor Supply is one of the strongest performers during the pandemic.
Expectations for this holiday season vary widely, from rather optimistic to far more muted. But with a bleak Friday now behind us, COVID cases rising and any government stimulus likely to be too little, too late, I’d bet on the lower end of the range. But either way, the one thing we can be fairly certain of is that retailer’s mileage will vary considerably, the middle will continue to collapse and that the strong will only continue to get stronger.
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Originally published at https://www.forbes.com.