Deloitte Study: ‘Balanced’ Retailers Being Squeezed Between ‘Price’ And ‘Premier’ Brands

Photo: RIC speaker Kasey Lobaugh, Chief Innovation Officer, Retail & Distribution at Deloitte

By Bryan Wassel, Associate Editor

There is a significant split in the retail industry, but it’s not the one between online and offline retailers. It’s not even the one between Amazon and Everyone Else. According to The Great Retail Bifurcation report from Deloitte, the separation is between value– and experience-focused retailers.

“What we’ve identified are pretty significant changes that are driven by the economic situation of the consumer,” said Kasey Lobaugh, Chief Innovation Officer, Retail & Distribution at Deloitte in an interview with Retail TouchPoints. “The best retailers are those retailers that identify how consumers are changing, and best modify their value propositions to deliver upon those needs.”

Lobaugh will speak at the Retail TouchPoints Retail Innovation Conference, expanding on his findings in a keynote entitled The Factors Fueling The Great Retail Bifurcation. The event will be take place April 30 to May 2 at Convene in New York City.

Balanced retailers, which offer value through sales and deals, have been squeezed on one side by price-based retailers that focus on selling at the lowest possible prices, and on the other side by premier retailers offering highly differentiated products or experiences. Revenue increased 81% at premier and 37% at price-based retailers over the past five years, while balanced retailers only saw a 1% increase.

Macroeconomic factors are playing a significant role in creating the divide between value and experience-focused brands. While average household income has returned to pre-recession levels, the bottom 80% of households have only received 7% of capital gains since 2007, and their shopping habits have changed to reflect their reduced spending power.

Store closings among balanced retailers are driving the apocalyptic narrative, but they fail to tell the whole story. A representative sample studied by Deloitte found balanced retailers shuttered a net 108 stores between 2015 and 2017, but price-based retailers opened a net 264 locations during the same period and premier retailers added 109 net openings to the total.

The rapid expansion of price-based retailers comes despite relatively little investment in technology on their part, according to Lobaugh. They find success in their ability to adapt to customer trends by delivering on value, often at the expense of providing a significant digital presence, particularly in mobile.

“At the end of the day, what matters is the consumer’s desires, demands, wants and needs,” said Lobaugh. “If you can understand and respond to those, that’s the secret sauce, and it may or may not involve technology.”

Shopping Behavior Splits Along Economic Lines

It’s true that there is a divide between shoppers who prefer e-Commerce or brick-and-mortar, but the preferences fall along economic rather than generational lines. Approximately three out of five low-income shoppers (58%) prefer browsing in-store, while a slight majority of high-income shoppers (52%) skew towards buying online.

The trend holds across generations, including Millennials. While 79% of low-income and 81% of middle-income Millennials are likely to shop in stores — similar to other generations — high-income Millennials are 24% less likely than all non-Millennial shoppers to shop in a store. High-income Millennials account for just 19% of the generation, but their exaggerated behavior skews the perception of the entire cohort.

“When you begin to tease it apart and look at it in a more granular way you discover some really interesting behaviors, demands and needs,” Lobaugh said. “For us this is a big ‘a-ha’ moment, because what we’re seeing is retailers have to be more and more granular about truly understanding the consumer, what they need and how they need to deliver it. The more we average things together and talk about the consumer or the Millennial consumer, the more we miss out on these unique insights.”

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