I’m the first to admit that I am skeptical about the overly optimistic holiday sales forecasts that are filling my inbox. This year I am particularly surprised by how many forecasts top NRF’s predictably rosy predictions, which this year range from 3.8 percent to 4.2 percent. That’s why I nearly went into auto-delete mode when this one, 2019 Deloitte Holiday Retail Survey, with a predicted 4.5-5 percent sales spike this holiday season popped up.
But then it was from Deloitte’s Rod Sides, an analyst plus a consulting firm I respect, and when I scrolled down a bit, I found something that caught my attention. “The 20 percent in the high-spender category (those spending $2,100 or more) will account for 60 percent of the total holiday spend.”
The Top 30%
That the high-spending consumers will contribute that much to retail growth this holiday didn’t surprise me, having studied the purchase behavior and spending power of those at the top income levels. Today those $100k+ households represent 30 percent of the nation’s 129 million households.
In whatever category of consumer spending one looks at, the top $100k+ income households typically spend two-to-three times more than the average income household. Attracting these high-spending customers can make a real difference to any retailer’s top and bottom line.
But before moving on, I already hear the objections: $100k+ income hardly counts as affluent. Admittedly a $100k income doesn’t go as far in some places as it does in others, but the country is big and diverse. People making $100k+ are still doing better than the bottom 70 percent.
And within the top 30 percent there are only two segments that any retailer needs to worry about: the top 5 percent with incomes $250k+ (the Ultra-Affluents) and the Mass-Affluent $100k-$249.9k HENRYs (high-earners-not-rich-yet).
Both of those segments – Ultra-Affluents and HENRYs – are included in Deloitte’s survey sample of 4,000, but Ultra-Affluents are a tough bunch to capture in any statistically-representative survey sample. Given their representation is so low in the overall population (5 percent) and they are notoriously survey-adverse (unless the survey oversamples this segment which this one didn’t), any results from Ultra-Affluents are going to fall into the margin of error and not be significant.So, for practical purposes, Deloitte’s high-income segment is overwhelmingly representative of the HENRY demographic.
How HENRYs Will Shop This Holiday
HENRYs are going to do the heavy lifting this year in boosting retail spending. As shopper’s level of income rises, the amount they plan to spend nearly doubles from the expected level of spending from those one rung beneath them.
So, for example, the lowest-income shoppers (<$50k) plan on spending $673. The next rung up at $50k-$99k will spend nearly twice that at $1,302, and then at the next level $100k+, they will spend $2,555 this holiday season. That means for any retailer, one HENRY shopper is worth four lower-income shoppers or two middle-income shoppers. Retailers need to work that much harder to attract a HENRY to the store or website.
There are, however, differences in how those 2x-4x HENRY customers are going to allocate their holiday spending. “What was the biggest shocker was the amount they plan to spend on socializing away from home, so travel, and entertainment is a huge part of the spin and proportionately larger than for the lower-income shoppers,” shares Deloitte’s Rod Sides, vice chairman and U.S. leader, retail. Specifically, the HENRYs plan to spend $1,059 on experiences. By comparison, the middle-income consumers will spend less than half that, or $491.
The remainder of the HENRYs’ spending will be divided between gifts ($846) and other self-purchases ($650), such as home and holiday decorations, clothing and other self-gifts. Besides their expectation to spend big on social experiences away from home (e.g. travel, hotels, restaurants), high on their pick list are clothing, food and liquor, books, gift cards, cosmetics/fragrance/personal care, games, shoes, home furnishings, DIY/home improvement goods, CDs/DVDs, and tickets for events.
In particular, their expected spending on electronics and home and kitchen goods far exceeds that of those with lower incomes. “In some categories, like home furnishings, kitchen appliances and electronics, this high-income group spends a lot. So, they may be buying another PC or tablet, a new cellphone, or a new countertop contraption for their kitchen. Retailers that sell these kind of items need to aim particularly at this high-income group,” Sides shares.
But there is bad news for brick-and-mortar retailers in this study. The HENRYs will be much more active shopping online than in-store. The HENRYs plan on spending over 60 percent of their estimated $2,555 holiday shopping budget online.
After online, Sides notes that HENRYs’ shopping preferences are category specific. For example, traditional department stores will be their first choice for clothing shopping, and furniture or home furnishings stores will be their second choice after online for home and kitchen items. And for food/beverage and personal care items, mass merchants are ahead of online.
When it comes to what factors influence them in their purchases, HENRYs are much like other shoppers, keen on product quality, variety, selection and brands, followed by price. “The high-income shoppers spend more on a premium retail experience,” Sides says. “Of course, they are like everybody else and looking for a deal, but they are less price-sensitive than lower-income shoppers.”
For the high-income shoppers, convenience is of greater importance than for those with less money to spend. “For holiday shopping, which this year is truncated by six fewer shopping days, high-income shoppers want to save time. Online delivers that,” Sides continues.”It’s easier and faster. They don’t have to worry about crowds or finding a parking space. And they are used to self-service shopping, so they don’t need a salesperson to explain features and benefits. They come to the store often knowing more about the product they want to buy than the salesperson,” Sides says and adds that 69 percent of shoppers this year say they will research online then go to the store to buy.
Let the Good Times Roll, For Now
While Sides and his Deloitte team are bullish about overall holiday sales results this year, they expect e-commerce sales to be the biggest winner, rising 14-to-18 percent, as compared with only 11.2 percent last year.
Yet while nearly 80 percent of consumers plan to spend more or the same as last year over the holidays, their outlook for the coming year has turned decidedly negative. Some 44 percent of the consumers surveyed expect the economy to weaken significantly or modestly. That is the highest it’s been since 2009. “I expected it to be up, but to jump from 27 percent last year to 44 percent this year is a dramatic shift,” he says. The previous biggest jump in uncertainty occurred in 2011, one year ahead of President Obama’s second term election. “I don’t know if it is coincidence, but we are at the same point in President Trump’s election cycle. A presidential election creates uncertainty about the future.”
As for this year, he says, “Consumers want to keep the good times rolling.” This year’s holiday celebrations, especially for HENRYs who will pivot toward spending more on partying and socializing with family and friends, will help boost consumers’ holiday cheer, at least through the New Year. But then we may see the other shoe drop, as they start to pull back spending in anticipation of economic turmoil ahead.