Retail sector will likely continue its split between higher end, lower end goods: Deloitte U.S. Economic Forecaster

Yahoo Finance’s Alexis Christoforous and Brian Sozzi break down Deloitte’s 2020 Holiday Retail Spending Report with Daniel Bachman, Deloitte U.S. Economic Forecaster.

Video Transcript

BRIAN SOZZI: It may still seem far away, but the holidays are right around the corner, and retailers are already setting off their sales plans. But it stands to be a brutal shopping season, as it falls right around the presidential election and during the pandemic. Now Deloitte is out with its 2020 Holiday Retail Report, and we have with us Dr. Daniel Bachman, Deloitte economic forecaster here to discuss. Daniel, the survey is calling for what I would say, muted growth. But is even that too optimistic, just considering the fact we have a pandemic and we're still amidst a recession?

DANIEL BACHMAN: It does look optimistic. There are a couple of reasons that it came out that way. The first is, you have to realize that there's a large group of people who are not economically affected by the pandemic. And that's one of the big takeaway messages that we have, is that this K-shaped recovery, and we economists keep coming up with new letters for you, right, so we had V, and then we had U and we had W, and now we have K. K is because there's a group of people who are able to work during the pandemic, work from home. Their incomes continue to come in. And they do tend to be the better paid workers.

And then there's another group of workers, and unfortunately, these are people who prior to the pandemic, tended to earn lower than average wages, and they're the ones who were in the service industries that require personal contact, and they're the ones who are being hit particularly hard. So we have two different economies, as it were. And that positive economy is still there. Those people are earning money. They haven't been spending it, so they do have some pent up demand. So that's part of the reason that things look a little better than you might expect.

The other reason is that it's retail sales. And holiday spending, of course, typically includes a lot of services that aren't going to happen or people aren't going to buy them. So people aren't going to travel to grandma's. People aren't going to be taking their kids to "The Nutcracker" this season. They're not going to be going to restaurants. So what are they going to do with that money? We've already seen what people are doing with money, and that is, they're buying goods rather than services, which is going to be a positive on the retail side, because retail is mostly goods.

BRIAN SOZZI: Now, Doctor, just listening to that, if we do, in fact, have that tale of two economies here and two spending classes, it sounds as if spending amongst low income Americans could fall off a cliff this holiday season versus last year.

DANIEL BACHMAN: Yeah, we don't, now we don't do spending by income class in our modeling. But intuitively, I would say yes, we'll probably see a continuation of a process that has been going on for a long time where the retail sector is becoming split between the retailers who are focused on the higher end and on the lower end. And yes, the lower end is probably going to be hurting quite a bit.

ALEXIS CHRISTOFOROUS: And Daniel, I'd imagine e-commerce going to be the big winner again out of all of this.

DANIEL BACHMAN: Yes. We think that e-commerce, we're predicting between 25% and 35% growth over last year. To give you an idea, prior to this, we do this every year, and we would typically get e-commerce growing at 10% to 15%, which is much faster than retail sales. So you could see e-commerce was picking up market share. But in our current forecast, e-commerce is just gobbling market share, quite frankly, from the bricks and mortar. And we do have probably a decline in sales in the bricks and mortar stores.

BRIAN SOZZI: Doctor, in the 30 seconds we have left, what's your worst case scenario for the holiday season? And what gets us there?

DANIEL BACHMAN: Our worst case scenario is we have a couple of landmines in the economy. The loss of the $600 unemployment insurance supplement and the lack of aid to state and local governments. So we do have a negative fourth quarter for GDP. Worst case scenario is that hits, along with clearly no vaccine and consumer spending just really starts to decline as people begin to be concerned about the longer term.