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K-Shape Economy Will Drive Vastly Different Holiday Shopping Experiences November 30, 2020 (0 comments)


New York, NY—Luxury retailers, including jewelers, are likely to have a decent, if not outright excellent, holiday season this year. Other retailers, maybe not so much.

The pandemic is exacerbating the inequalities between rich and poor Americans. After months of debating whether the economy would be a rapidly-recovering “V,” a slightly longer “U,” a double-dip “W,” or the dreaded “L” shape, the real answer has emerged and it's “none of the above.”

Instead, economists have likened it to a K, where upper-income consumers are doing better than ever and lower-income Americans are struggling more than ever.

And that’s starting to play out at Christmas, as predicted by this earlier article on At one end are high-earning workers who have not only kept their jobs, but also are benefiting from a good stock market and lower expenses. Money saved from vacations not taken, gas not used for commuting, dining out, and even dry cleaning expenses means these consumers are flush with cash and ready to spend lavishly for the holiday. In fact, the National Retail Federation predicted holiday sales overall to rise between 3.6% and 5.2% this year—a good forecast by any measure, and outstanding considering the circumstances the retail industry was facing earlier this year. 

A more modest Deloitte analysis said holiday spending is poised to rise between 1% and 5% this year—not as optimistic as NRF’s forecast, but also not bad given the situation we’re in. NRF implies, and Deloitte says outright, that holiday sales gains will be driven by the financially stable households; i.e. the “haves.” Demand for luxury clothing and accessories and fine jewelry is already rebounding and marketers are working overtime to find ways to attract these customers with money to spend.

Related: Jewelry Store Sales Up 17% For Period From Sept. 25 - Oct. 15

The flip side, however, are the “have-nots;” those households who have lost jobs and are struggling to make ends meet or, worse, possibly facing eviction and food insecurity soon as extended unemployment benefits under the CARES act expire on December 31—along with a moratorium on evictions. While some of the pandemic-related job losses have come back, the economy is still down some 13 million jobs from February, and it’s looking like those aren’t coming back any time soon. Private payroll growth slowed dramatically in October, adding 365,000 new jobs, which was well below economists’ projections of 600,000 for the month and less than half of the 753,000 jobs added in September. Additionally, many major companies are undergoing layoffs that impact higher-income jobs, and COVID case numbers are soaring again--which, if Black Friday foot traffic is any indicator, likely will hamper the industries already hardest hit, like hospitality and travel. 

Christmas may also be leaner for Americans who got their jobs back after things reopened, but have yet to catch up on bills or recoup lost income from the time they were shut down. A Gallup Poll released last month shows 28% of Americans plan to spend less on gifts this holiday season compared to last year, the highest percentage of such since 2012. Only 12% plan to spend more, and October core retail sales figures came in lower than expected as surges in coronavirus cases have kept consumers wary. Excluding automobiles, gasoline, building materials and food, retail sales rose 0.3% in October, vs. the forecasted 0.5% for the month. 

But hopefully there's good news ahead: three pharmaceutical companies have developed what appear to be effective vaccines against COVID-19, spurring optimism in equity markets and consumers alike. While too late to change much for this holiday season, there are widespread hopes that vaccination of the population at large can be underway by Q2 of 2021.

Related: What Will A Vaccine Mean For Retail?

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