The growth rate for retail sales this holiday season is expected to be less robust than in recent years, according to projections released Tuesday by consulting firm Deloitte.
But how subdued growth is going to depend on how much exciting high-income consumers do and how much tightening of the belts takes place in lower-income households.
Some economists are now calling for a K-shaped recovery – a scenario in which certain types of industries see gains while others are left out. In contrast to so-called U- or W-shaped restorations, the growth of a K-shaped rebound is unevenly divided between income groups, creating a scenario with “haves” and “have-nots.”
Since the coronavirus pandemic began, some industries are still shrinking where workers can be productive at home. Others, however, have seen sales dry up as consumers avoid eating out, going to the cinema and going on holiday.
“This year, one of two holiday scenarios will play out,”
According to Deloitte, holiday sales this year are expected to increase between 1% and 1.5% and amount to between $ 1.147 trillion and $ 1.152 trillion in the November-January time frame. That compares with 4.1% growth in 2019, when sales were nearly $ 1.14 trillion, according to the U.S. Census Bureau.
Deloitte explains that the range from 1% to 1.5% stems from mixing two different scenarios, driven by large and small consumers.
First, Deloitte expects that there may be relatively stable sales of 0% to 1% over the holidays if consumers – particularly lower wage earners – remain nervous about their finances and health and have to spend more of their spending on necessities. Running out unemployment insurance benefits could also make this first scenario more likely, Deloitte said.
However, a larger increase of 2.5% to 3.5% may occur if affluent consumers gain even more confidence in the latter half of 2020. Factors that can strengthen confidence within this group include falling unemployment, further stimulus from the government and an effective Covid-19 vaccine, Deloitte said. This scenario predicts that the money that higher-income consumers do not spend on vacations and experiences such as concert and Broadway tickets will be led to spend on holiday gifts where people are more eager than ever to splurge.
“While high unemployment and economic anxiety will outweigh overall retail sales this high season, reduced spending on pandemic-sensitive services such as restaurants and travel may help boost retail holiday sales somewhat,” said Daniel Bachman, Deloitte’s US economic forecast.
With many consumers still spending most of their time at home and avoiding crowded, public places, it is inevitable that more spending will also take place online this holiday season. Deloitte expects holiday e-commerce sales to increase by 25% to 35% and amount to between $ 182 and $ 196 billion. This is compared to a year-on-year growth of 14.7% in 2019 with sales of $ 145 billion.
But it also puts pressure on retailers to prepare for an attack on online orders, starting as early as next month and running until last-minute deadlines for delivery.
“Many of the people I’m talking to right now are afraid of running 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 predict holiday shopping will start earlier than ever this year.
Many have announced that they will close their doors on Thanksgiving Day and end what had become a new tradition of opening ahead of Black Friday. And strategies to prevent stores from overcrowding in an era where social distance must be enforced are being explored. Businesses are trying to measure what consumers will buy in the midst of a global health crisis. Consensus seems to be: Something cozy.
According to Deloitte, retailers may need to plan a scenario where the recovery in the US is uneven – with a wedge driven even further between the rich and the poor.