Mia Farrow is a common image that symbolizes the Roaring 20s: an age of beauty, joy, abandon, unprecedented riches and living in the moment. Until the moment fell apart in 1929.
There has been a lot of talk about this type of Roaring 20s-esque, wild consumerism returning post-pandemic. And maybe it will. But not everyone will attend the wild party. In 2022, the Roaring 20s will dominate the retail scene — not the era, but the income group. The top 20% of earners has grown dramatically, while the bottom 20% struggles to afford necessities and pay bills. We can see the difference by each fifth’s discretionary spending in 2020 and 2021. For the top and second highest 20% of earners, their discretionary spending ranges from above to well above their need to spend on necessities. For the bottom and second lowest 20%, discretionary spending will force them to take from funds reserved for the necessities.
And how about personal wealth? During the Pandemic Era (from 2018), the income of the top one percent grew to $8.2 trillion; the 90th to 99th percentile grew to $9.1 trillion and the 50th to 90th percentile grew to $6.1 trillion. That leaves the bottom 50%, which in total has a current wealth of $1.2 trillion. Adding this all up, the top 50% of wealth grew to $23.4 trillion or 95%. How about that for income equality?
Naturally, the top 10% of earners will continue to spend the most, while the aspirants from the 50th to 90th percentile — the HENRYs (High Earner, Not Rich Yet) with annual incomes between $100,000 and $250,000 — will look to fulfill their aspirations through discretionary spending, mostly on luxury items that may make them feel richer. These luxury purchases won’t just be clothing (although that is a large percentage of spending as it is the easiest to purchase) but will also include entertainment, cars, vacations and the newest technologies (for example, the Amazon astro robot, which retails for $1,000).
So what does this portend for retail?
Firstly, tremendous growth in the premium and luxury sectors. Not just the iconic brands but the hundreds of new brands that have positioned themselves with the hopes of joining the luxury fraternity.
Secondly, what has come to be known as the bifurcation of retail will become more exaggerated. The bottom 50% must be concerned about price in everything that it does and buys; retailers that emphasize and are devoted to price strategy like Walmart, TJX and Amazon will be its go-to shopping destinations.
On the other hand, the top 50% will look for individualistic and higher quality products from the above iconic and emergent premium and luxury retailers.
What is missing here? The middle, which has been traditionally populated by “balanced” department stores. It looks like they will continue to find themselves irrelevant in the both high- and low-end consumers’ retail plans.
Can the department stores reinvent themselves to be the true moderate middle again? To do so, will they give up the 25% because of this plus another 25% because of that and 25% more to fill the floors with quality, well-merchandised goods that represent fashion and quality at a moderate price point? Even if they want to, do they have the merchants who can do it? Back in the day, we New-York-department-store buyers were good to great merchants who trekked to Paris and Tokyo and knew what they wanted to buy or develop. Then, the sales floors were not overcrowded or over-assorted and instead, they represented our statements of what we believed in. Sound familiar? This is the way that Inditex, Zara’s biggest division, runs its business.
My word is not as good as the facts. According to the Deloitte Insights Report in 2018, the five- year trend is 81% growth for the luxury sector, 37% for the price-based sector and a paltry growth of 2% for the great moderate middle. More, the number of net stores opening from 2015 to 2017 was plus 109 for the luxury sector, plus 263 for the price-based sector and minus 108 for the middle sector.
We all know that the pandemic served as the grim reaper for many retailers, most in the moderate middle, but the Deloitte report was exposing something that had started to happen years before the pandemic. Conclusively, the report said, “The great retail bifurcation is the apparent low-end and high-end retailers in accordance with the consumer’s economic situation and, more importantly, in accordance with a close understanding and response to what needs the consumer is expressing.”
According to the same report, the bifurcation represents an opportunity: a renaissance for retailers big or small, apparel or any industry, who want to pay close attention to the evolving requirements of their target audiences, such as ethics and sustainability — but that’s another subject. (Author’s note: this is the first in a series of articles about the luxury retail sector. Watch this space for more).
That’s the Roaring 20s — 2021 style. Both a problem and an opportunity.
