Most of the conversation about retail is about how some brands are liquidating while others close stores. However, an intriguing report from Deloitte claims that brick-and-mortar brands at the top and bottom of the market are actually thriving, while the middle is struggling.

In Deloitte’s telling, this bifurcated market is the result of changing consumer needs and preferences. Over the past ten years, lower-income and middle-income Americans have witnessed their expenses grow and income shrink. At the same time, the highest income group has experienced significant gains in income and net worth. So most consumers seem to be keenly focused on finding good deals, and they often look for them in stores, while wealthy shoppers are wanting specific high-end brands and personalized experiences.

The result? Retailers focused on low prices or premium experiences have opened up new locations and watched their revenue grow.  Meanwhile, the ones in the middle, which rely on sales and promotions to sell widely available products, have done the opposite.

For retailers looking to succeed in this new era, the key will be moving away from the dreaded middle. Instead, you’ll want to match your strengths to current consumer preferences, and then find new ways to improve your consumer experience, both in stores and online. 

A market divided

 If you paint the U.S. economy with a broad brush, consumers seem to be doing well. Deloitte reports that median income is higher than it was before the Great Recession, and retail spending growth has outperformed GDP growth. In an unexpected twist given the news about stores closing, 91% of retail sales are still made in stores.  

But digging deeper, the analysts discovered that only the highest income groups have benefited from the growing economy. Eighty percent of consumers have witnessed their financial situations actually worsen over the last decade. All of this has played out in consumer shopping habits—and deeply impacted the retail landscape.

For example, the sales of price-based retailers have increased by 37% in the past five years, and sales of premium retailers have grown by 81%. Retailers in the middle experienced a scant 2% increase in the same time period.

Just as notable: Lower-income consumers are 44% more likely than their higher-income counterparts to shop in physical stores, combing aisles for deals. High-income consumers are 52% more likely to shop online. 

Retailers respond

While these trends certainly hurt some well-known retailers, others have leveraged the shifting consumer behavior to their advantage. In the price-based category, Target is a leader. The retailer announced that it’s spending $7 billion to remodel its stores by 2020. Even as Target improves its physical locations, the retailer is also adding convenience via digital initiatives. The company offers curbside pickup and same-day delivery from hundreds of its stores.

 Macy’s – whose bread and butter has long been the middle-class consumer – has revamped its approach after some difficult years. The company is moving away from promotions as its marketing strategy and instead is elevating its in-store experience. In fact, in an earnings call last year, CEO Jeffery Gennette said, “We are not in the commodity business. We are in the experience business.” As an example, Macy’s is introducing in-store mobile checkout and piloting smaller concept-stores within stores.

At the higher-end, Ulta Beauty plans to open 80 new stores this year. The company has focused on loyalty programs, introducing new cosmetic lines, and most importantly, personalizing the store experience for the customers. Ulta’s motto is that every customer is a wanted customer, and they train associates to treat store visitors as such. 

Moving out of the middle?

Physical stores are far from dead. But retailers wanting to thrive in the next retail renaissance need to think differently about the store experience they’re providing consumers—and ensure it matches with what shoppers want and expect.

That may mean creating smaller, more intimate store formats, reevaluating product offerings and finding ways of making the customer interactions more personal and relevant.

Following trends in tech is another critical ingredient, as retailers explore ways to more seamlessly integrate their online capabilities with in-store experiences. This may include envisioning opportunities for social media in stores, using AR and VR in innovative ways, and leveraging customer data to provide even better service.

Strategies will differ by company. But once you find the right one for your brand and market, the key is executing it across your locations. You need to effectively communicate your position to your customers and maintain that message across channels—from store to store, associate to associate. Doing so guards against consumer confusion and ensures your customers know exactly what your brand offers and why they should shop with you. 

Physical stores aren’t going anywhere. But consumer preferences are changing. Move out of the dreaded middle, and discover how your company can thrive in the next retail renaissance.