Deloitte: Middle Of The Market Retail Faces Headwinds

According to research from Deloitte, omnichannel may not be enough for retailers serving middle class consumers to succeed.

The problem is, as the market research firm noted, a retail bifurcation, with retailers serving the lower and upper end of the consumer economic spectrum making gains at the expense of the middle.

Still, some retail channels have shown resilience, including home furnishings, beauty/cosmetics, and home improvement, which all grew over the past five years, Deloitte noted. The gains haven’t necessarily been exclusively online. As an industry, retail is growing and the vast majority of retail sales, 91%, still take place in brick and mortar stores. Yet, even though Deloitte cited an online growth estimate of 11.7% and 1.7% in store, which could see retailers gain on either side, the outlook has a weak spot: the middle.

Deloitte asserted that the recent past has been economically abysmal for many consumers. Over the past decade, the lower 40% income group has found itself struggling to keep up with expenses, while the middle 40% has seen its income shrink. For four-fifths of consumers, the last 10 years has seen financial situations getting worse. In contrast, income and net worth gains are disproportionately going to the highest-income group.

Even more concerning for many retailers, all but the highest earners have experienced shrinking non-discretionary income as health care costs have risen 62%, education costs have risen 41%, food costs have risen 17%, and housing costs have risen 12%. The increases have hit the lowest-income group hardest. Basic necessities, for the first time in a decade, consume more than 100% of a low-income family’s budget.

The result is greater competition for discretionary dollars at retail. For the 80% of the shoppers who face strained budgets with limited disposable income, price sensitivity drives purchasing.

The likelihood of making an online purchase versus buying in a store is highly correlated to income, Deloitte maintained. Low-income consumers are 44% more likely than their wealthier counterparts to shop discount retailers as well as supermarkets, convenience stores and department stores. In contrast, high-income consumers are 52% more likely to shop online.

Deloitte noted that retailers need to consider and act upon consumer perception of economic well-being or economic uncertainly to offer a value proposition that aligns with shopper needs.