Holiday spending will hinge on how much the rich splurge and the poor cut back, Deloitte says

Business

The growth rate for retail sales this holiday season is forecast to be less robust than in recent years, according to projections released Tuesday by the consulting firm Deloitte. 

But just how muted that growth is going to be will hinge on how much splurging high-income consumers do, and how much belt-tightening takes place throughout lower-income households. 

Some economists are now calling for a K-shaped recovery — a scenario where certain types of industries see gains, while others are left out. Unlike so-called U- or W-shaped recoveries, growth in a K-shaped rebound is unevenly split between income groups, creating a scenario with “haves” and “have-nots.” 

Since the coronavirus pandemic has begun, some industries are still chugging along where workers can be productive at home. Others, however, have seen sales dry up, as consumers avoid eating out, going to the movies, and taking vacations. 

“This year, one of two holiday scenarios will play out,” said Rod Sides, a vice chairman at Deloitte and its retail and distribution sector leader. “History would tell us … we are going to see groups of consumers recover differently.” 

According to Deloitte, holiday retail sales this year are forecast to rise between 1% and 1.5%, amounting to between $1.147 trillion and $1.152 trillion during the November-to-January time frame. That’s compared with growth of 4.1% in 2019, when sales were nearly $1.14 trillion, according to the U.S. Census Bureau. 

The range of 1% to 1.5% is derived by blending two different scenarios, driven by big and small spenders, Deloitte explained. 

For one, Deloitte expects there could be a relatively stable 0% to 1% jump in sales during the holidays, if consumers — especially lower-wage earners — remain nervous about their finances and health, and must commit more of their spending toward necessities. Unemployment insurance benefits running out also could make this first scenario more likely, Deloitte said. 

But a bigger 2.5% to 3.5% increase could occur if wealthier consumers gain even more confidence in the back half of 2020. Factors that could bolster confidence within this group include shrinking unemployment, additional government stimulus and an effective Covid-19 vaccine, Deloitte said. This scenario anticipates that the money higher-income consumers aren’t spending on vacations and experiences such as concert and Broadway tickets will be funneled into spending on holiday gifts, with people more eager than ever to splurge. 

“While high unemployment and economic anxiety will weigh on overall retail sales this holiday season, reduced spending on pandemic-sensitive services such as restaurants and travel may help bolster retail holiday sales somewhat,” said Daniel Bachman, Deloitte’s U.S. economic forecaster. 

With many consumers still spending the majority of their time at home and avoiding crowded, public places, it’s inevitable more spending will be taking place online this holiday season, too. Deloitte is expecting holiday e-commerce sales to surge by 25% to 35%, amounting to between $182 billion and $196 billion. That’s compared with year-over-year growth online of 14.7% in 2019, with sales reaching $145 billion. 

But that’s also putting the pressure on retailers to prepare for an onslaught of online orders, starting as early as next month and running until last-minute shipping deadlines arrive. 

“A lot of the folks I am talking to right now are afraid they are going to run out of inventory,” Coresight founder and CEO Deborah Weinswig said in an interview. “We are already capacity constrained. … And the consumer has no idea this is coming.” 

A number of retailers including Macy’s have said they’re predicting holiday shopping will start earlier than ever this year. 

Many have announced they will close their doors on Thanksgiving Day, ending what had become a recent tradition to open ahead of Black Friday. And strategies to prevent stores from overcrowding in an era when social distancing must be enforced are being explored.  Companies are trying to gauge what consumers will want to buy in the middle of a global health crisis. The consensus seems to be: Anything cozy. 

According to Deloitte, retailers should, maybe most importantly, be planning for a scenario where the recovery in the U.S. is uneven — with a wedge being driven even further between the rich and the poor. 

Articles You May Like

A Roth IRA may help fund your home purchase. Here are the pros and cons
What the post-coronavirus workplace might look like
Despite Recent Challenges, The Real Estate Crowdfunding Industry’s Future Is Bright
Wellness Design Solutions Address Retracted CDC Aerosolized Covid-19 Transmission Risk Guidance
Congressional lawmakers worry Trump’s payroll tax deferral will hurt Social Security

Leave a Reply

Your email address will not be published. Required fields are marked *