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Income inequality begins to reshape holiday shopping

An era of wider rich-poor gaps is changing how companies think about making and marketing products. It's one of a few emerging trends in holiday shopping.

American shoppers are poised to spend a bit more this year compared to last holiday season 鈥撎齜ut听deeper changes in America's holiday shopping season are also at work.听

In听an era of wide rich-poor gaps 鈥� and听a shrinking middle class听鈥撎齝ompanies are听changing听how they think听about the making and marketing of products. Aiming products at听a massive and homogenous middle market no longer works so well.

Smartphones are pushing even more shoppers online.

And younger consumers are showing听more interest in experiences 鈥� like travel, sports, or a memorable meal out 鈥� than in old-fashioned accumulation of stuff.

These are all gradual or incremental changes 鈥� not instant revolutions.听But they鈥檙e showing up as trends this year that speak to a听retail industry potentially facing a time of transition.

New trends in holiday shopping

Analysts at the investment bank Morgan Stanley see bifurcation among consumers as a long-term听trend听that retailers and other consumer-oriented companies are having to adapt to.

The rich-poor gap began expanding in America (and other nations)听long before the Great Recession, the Morgan Stanley analysts note in a November report.

If it persists, retailers will likely continue to respond with "greater product differentiation" and "more price and quality segmentation at the top and bottom of the offering range," the analysts say.听鈥淐ompanies capable of embracing complexity should outperform."

In this environment, companies as diverse as McDonald鈥檚 and Macy鈥檚 are scrambling to reboot.

The complexity retailers are adapting to goes beyond income gaps. It鈥檚 also technological change and shifting tastes.

Whether the business is restaurants or department stores, many retailers see a current generation of customers that鈥檚 more interested in qualities (鈥渉and-made,鈥� 鈥渙rganic鈥�) and in experiences like recreation and travel.

Retailers are also having to adapt to the continued migration of shopping online. Last year, online holiday retail sales represented 13.7 percent of holiday retail sales, by IHS Global Insight estimates. This year that share is likely to jump another notch higher, to 14.7 percent, predicts听Chris Christopher, director of consumer research at IHS Global Insight, in a Dec. 11 analysis.听

This doesn鈥檛 mean people aren鈥檛 going to the mall or buying clothes. But Macy鈥檚 stock is way down this year. (McDonald鈥檚 stock, by the way, is up amid its reinvention efforts.)

And Amazon, the king of Internet retailing, is one of the year鈥檚 hottest stocks. It has doubled its share price, and the delivery trucks are still rolling.

This season, by the numbers

By some accounts, consumers have been slow to get into the gift-shopping game this holiday season. The number of procrastinators 鈥� people who hadn鈥檛 started their shopping as of early December 鈥� was 6 percentage points higher than last year in听.

But听respondents in the survey were feeling notably brighter about their finances than last year.听Some 28 percent of respondents said they were 鈥渇airly, very, or extremely concerned鈥� about overspending this season, down sharply from 44 percent in 2014, Consumer Reports said.听And 47 percent said they were 鈥渘ot at all concerned鈥� 鈥� more than double the number that said that last year.听

Those who do feel stressed about the holidays cite a money squeeze as the top concern 鈥� far above things like anxiety about travel, entertaining relatives, or not knowing what gifts to buy.

鈥淲e are forecasting holiday retail sales to rise 3.4 [percent] above last year; not as strong as last year鈥檚 growth, but a solid showing,鈥� writes Mr. Christopher. 鈥淭his holiday retail sales season is looking rather promising since consumer price inflation is modest, confidence is making a comeback 鈥� and job opportunities are looking brighter.

Falling gasoline prices听are听pumping extra cash into bank accounts, which some consumers are spending on extra restaurant meals as well as at the mall, says Mr. Christopher, in Lexington, Mass.

For the overall economy, this is good news. Modest gains in consumer spending have fueled steady but unexciting growth in GDP, the nation鈥檚 gross domestic product of goods and services. The economy grew at a 2 percent annualized pace in the year鈥檚 third quarter, the Commerce Department said听Tuesday.

Forecasters at PNC Financial Services, in Pittsburgh, predict a 2.7 percent pace for GDP growth in the fourth quarter, and 2.4 percent for next calendar year.