"Despite the popular narrative, the 'retail apocalypse' is far from reality," said Kasey Lobaugh, principal, Deloitte Consulting LLP and the report's lead author. "Brick-and-mortar retail is not on or near its deathbed. In fact, we're seeing retailers open new stores at an astounding pace, and physical retail is growing alongside digital. Rather than witnessing the demise of retail, our study shows a dramatic change in line with the impact of consumer bifurcation along economic lines. While specific retailers may see an apocalypse, others see opportunity."

Based on a survey of more than 2,000 consumers and an analysis of a large collection of US-based publicly traded retailers, the study examines a growing disparity between consumer income cohorts and highlights the impact of this economic bifurcation on retailers.

Consumer income bifurcation defies traditional economic metrics
While strong economic indicators paint a promising portrait on the surface, the study looked deeper and found massive gaps in consumers' discretionary spending power. Incremental income generated since the recession has disproportionately gone to high-income households, with virtually all income growth between 2007 and 2015 going to the top 20 percent.

Deloitte found that the household economic health correlates to consumer spending behavior. Key economic findings from the study include:

• Economic well-being: Just one-in-five surveyed consumers (20 percent) are better off in 2017 than they were in 2007 in terms of disposable income, with little to spend on discretionary retail categories. Overall, four in five consumers (80 percent) have fewer funds for traditional retail segments such as apparel. Alongside this trend, high-income consumers are 10 percent more likely to report spending more over the last year.

• Rising costs: Faced with stagnant levels of income, lower-earning consumers have seen the costs of nondiscretionary items skyrocket: health care expenditures have risen 62 percent, education 41 percent, food 17 percent and housing 12 percent, according to Deloitte's analysis of reports from Bureau of Labor Statistics.

• New expenses: Modern consumer essentials like mobile phones and data plans now take up an increased portion of discretionary spending, stealing share from traditional retail categories. Low-income consumers feel the brunt of the impact, spending 3.6 percent of their income on digital devices and data, compared to just 0.71 percent for high earners.

"Households have diverged along economic lines and now people's respective income levels are steering their behaviors and dictating the success of retail segments," said Robert Stephens, senior manager, Deloitte Consulting LLP and co-author of the study. "More affluent shoppers have fueled high-end retail as their income and net worth have grown, while lower-earning consumers, faced with growing expenses and dramatically less disposable income, have turned toward price-conscious stores. Retailers that try to court all consumers will likely be challenged as income bifurcation leaves different shoppers with differing motivations."

Retail isn't dying, and premier and low-price are thriving
In line with consumer bifurcation by income level, Deloitte found the retail market is also bifurcating along economically-driven divides. Through an analysis of publicly traded retailers, Deloitte defined three retail cohorts: premier retailers that deliver value via premier product and experience offerings; price-based retailers that deliver value by selling at the lowest possible prices and clearly communicating that proposition to customers and balanced retailers that deliver value via a balance of price and/or promotion.

Examined side by side, these three groups offer differing narratives that align with income-driven changes in consumer behavior:

• More stores are opening than closing: From 2015 to 2017, price-based retailers gained 2.5 stores for every store balanced retailers closed.

• Revenues have grown: Premier retailers have seen 40x more revenue growth than that of balanced retailers over the last five years, with revenues soaring 81 percent versus a mere 2 percent increase for balanced retailers. Price-based retailers, meanwhile, have seen their revenues steadily increase 37 percent over the same period.

• Sales climb overall: Premium (8 percent) and price-based (7 percent) retailers' sales rose in the past year, while sales of balanced retailers declined by 2 percent.

Income bifurcation Impacts consumers' category, channel and spend decisions
Income bifurcation has triggered differences in consumer shopping behavior between economic groups. Beyond their actual spending levels, these two groups also differ in how and where they make purchases:

• Preferred formats: Low-income consumers are 44 percent more likely to shop at discount retailers than other groups. These consumers are also more likely than others to shop at supermarkets, convenience stores and department stores.

• Channel choices: The majority (58 percent) of low-income consumers are choosing to shop in store, while 52 percent of high-income consumers prefer to shop online. High-income consumers were also 42 percent more likely to report an increased propensity to shop online over the prior three months.

• Shopping around: In-store spending fragmentation – or the number of retailers a consumer regularly shops - is 17 percent higher amongst high-income consumers. Fragmentation is even more exaggerated online, as affluent consumers are 40 percent more fragmented for online retailers than consumers in the lowest income cohort.

The millennial money myth
While millennials are often lumped together and portrayed as the source of disruption, Deloitte found that for the most part, millennial behavior (by income group) is virtually indistinguishable from other generations. Low-income millennials track closely with all other generations when it comes to whether they have spent in stores recently (79 percent and 81 percent, respectively), and in the middle-income cohort, there's no difference between millennials and other generations, with 81 percent of each group having made purchases in-store.

However, high-income millennials, who make up less than one-fifth (19 percent) of the total millennial generation and just 6 percent of the population overall, skew perceptions of Gen Y as a whole. High-income millennials are 24 percent less likely than all non-millennial shoppers to shop in a store, and may be the source of the idea that millennials are the end of brick-and-mortar retail. When averaged together, the high-income shopper's behaviors skew the averages for the entire millennial group.