It's true that in the "Experience Economy" Americans are spending a greater percentage of personal consumption on services than ever before, a large portion just happens to be going to pharmacies, doctors and insurance companies, not their travel agent.
Stories of struggling retail chains closing their doors are now commonplace in national business news. A typically cited reason is the growth of ecommerce, which implies that Americans are still buying stuff, just through a new channel. The retail sector continues to grow but the National Retail Federation predicts that nearly all retail growth will be in the digital channels through 2020. Further, according to analysts and Fung Global, recent years have some sales in semi-discretionary categories like footwear and apparel declining relative to overall retail in the U.S.
The supposed retail apocalypse is not the whole story. A parallel economic theme is that U.S. healthcare costs are higher than anywhere else in the the industrialized world. They are linked because unlike a fresh pair of jeans or a new car, health care is always a priority, at the foundation of the modern hierarchy of needs (just above wifi). More expensive care and resulting increases in insurance premiums means less disposable income for luxuries like electronics, expensive clothes, shoes, and handbags. What remains of the market for those products seeks them at a deep discount. If not through Amazon, then they will search off-price retail or secondary markets to avoid paying full price.
Can a more efficient healthcare system save retail?
In theory, it's possible that freeing up extra disposable income by any means would accelerate consumption and the overall economy.
Less expensive health care could also create new jobs as employers typically share a large burden of rising costs. Health insurance savings means more head count and or higher take-home pay for the employees they already have. Sound healthcare policy would also maintain a key benefit of the Affordable Care Act, which reduced the number of personal bankruptcies by half. But, it's not the whole solution. Demographic trends virtually ensure that the unprecedented growth of the service sector (also dominated by financial services) will continue. Not counting on "what if's," Amazon is hedging its bets by exploring entry into pharmaceutical sales.
Does More Disposable Income Guarantee More Consumption?
If you believe Keynesian Economics, more income certainly results in more consumption (and investment). The question is to what extent that will be the case in an economy largely influenced by millenials. Brands need to resonate with that dominant consumer segment to grow. According to analyst Geoff Cook:
“Millennials are more focused on experiences which inherently incorporate what they value: sharing time together, transparency or realness, and perhaps learning something or doing good along the way,”
Regardless of generational shifts in consumer behavior, it is a certainty that health care will always be a financial priority and that struggling retailers would welcome the share of wallet they had fifty years ago.
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