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Game change? 


It was the best of times. It was the worst of times. It’s that kind of Dickensian double-speak that personifies the tone of the holiday forecasts this year — forecasts that have really been all over the board. Even with the strong Black Friday/Cyber Monday tailwind that’s been driving retailer holiday hopes higher in the past few weeks, and the fact that consumers are more focused on gift-giving this year than last, there still seems to be two distinct consumers shaking out — that higher-end, bullish consumer who’s paying close attention to stock prices and that 
middle-end, running-on-empty consumer who’s paying close attention to gas prices.

The question is whether this “Tale of Two Retails” is just more of the same old “new normal” shopping behavior, in which all consumers exercise restraint and hold out for better values, or is the game changing once again? If the consumer press has it right about the shrinking middle class that’s helping to stretch the divide between rich and poor, what does that mean for retailers who traditionally have targeted the middle?

Walmart may be proving to be a cautionary tale — the retailer that historically has focused on lower-echelon customers through everyday low pricing has struggled with negative comps of late. And Walmart is facing greater competition for that low-end consumer as dollar store operators look to improve their chic appeal through a broader branded mix. According to Accenture, such low-end retailers as Family Dollar and Dollar General saw average revenue grow by 19% in total over the past three years. By contrast, retailers catering to the middle class — such as JCPenney, Kohl’s and Sears — grew by only 6% in the same period.

Many drug retailers appear to be raising the retail experiences they deliver to meet the expectations of a higher-end consumer with prestige beauty offerings and a greater stake in fresh food. Walgreens is even making a long-term play against electric car owners, most of whom make more than $100,000 on average, according to a J.D. Power survey.

But the new normal in consumer behavior hasn’t necessarily changed, not even for higher-end consumers. Women still are making purchase decisions from their kitchen table and still are on the hunt for the best value when filling out that list.
But higher-end consumers do represent an untapped opportunity for drug retailers. “Drug channel sales are underdeveloped among $100,000-plus households,” noted Todd Hale, SVP shopper and consumer insights at Nielsen.

“On a total outlet basis, it is only the $100,000-plus segment — 21% of households — that are driving growth in shopping trips and spending. Within the drug channel, [more than] half of U.S. households (53%) with incomes of $50,000 or more are driving solid growth in both trips and spending,” Hale added. “In both cases, the largest declines in shopping trips and spending is among the 15% of households with incomes under $20,000.”

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