The New York Times has a great article about the consumption habits of the middle class and the wealthy. Businesses that cater to the middle class, like JC Penny and Red Lobster, are struggling, while companies with wealthier clients, like Nordstrom and Capital Grille, are doing just fine.
As politicians and pundits in Washington continue to spar over whether economic inequality is in fact deepening, in corporate America there really is no debate at all. The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away.
If there is any doubt, the speed at which companies are adapting to the new consumer landscape serves as very convincing evidence. Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts.
“Those consumers who have capital like real estate and stocks and are in the top 20 percent are feeling pretty good,” said John G. Maxwell, head of the global retail and consumer practice at PricewaterhouseCoopers.
It’s nice to see that the business community has adapted effortlessly to the new income inequality reality.
Related: Have you seen the website, Hourzz, which is geared towards wealthy people who are renovating their homes?
Apt. 11d 
Good graphs, and they didn’t mislead by changing the baseline or reporting numbers as percents of percents.
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The graphs show the relative share of spending, but it would also be interesting to know if the middle class are aiming up in spending — one of the trends I see in marketing is the tendency for everyone to know about and want to access luxury goods. As a kid, I can’t imagine most of the people I hung out with even knowing about the equivalent of Blahnik shoes (1000 dollar shoes!). Now, it feels like everyone knows, with internet trends and magazines and the like.
Middle-class brands might be dying because the middle class is smaller and is less willing/able to spend (the graphs show that). But, middle-class brands might also be dying because the middle-class isn’t willing to settle for middle-class brands anymore. We’ve always bought Apple products, but I remember distinctly when buying Apple was seen as a luxury good by others.
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bj said:
“The graphs show the relative share of spending, but it would also be interesting to know if the middle class are aiming up in spending — one of the trends I see in marketing is the tendency for everyone to know about and want to access luxury goods.”
Exactly. Take for example the Coach Bag.
“Middle-class brands might be dying because the middle class is smaller and is less willing/able to spend (the graphs show that). But, middle-class brands might also be dying because the middle-class isn’t willing to settle for middle-class brands anymore.”
Exactly. Red Lobster is terribly expensive for what you get.
Laura said:
“Businesses that cater to the middle class, like JC Penny and Red Lobster, are struggling, while companies with wealthier clients, like Nordstrom and Capital Grille, are doing just fine.”
Pretty much all the stuff I used to buy at JC Penney (small household appliances and linens and socks and underwear) I now purchase either online or at Bed Bath and Beyond or Walmart. That’s partly geography, but also because JC Penney just doesn’t have a lot to offer these days.
The case of Nordstrom is interesting, because they are famous for their customer service. If you need inexpensive, you can go a lot of places and do as well or better than JC Penney. But if you need help, you need to go someplace with actual customer service, which is not JC Penney.
As JC Penney is neither that cheap nor that helpful, they really do not have a market niche.
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But, remember that the graphs show a decrease in relative spending by the middle class and poor compared to the wealthy. That’s independent of whether the middle class brands are also dying because of changes in brand allegiance/knowledge among the middle class and does support the premise of the story, that the middle class is shrinking in the consumer market relative to the rich.
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Yes. The main story seems solid. Though I agree with Amy about there being really no point in going to JC Penny or Red Lobster. I don’t understand how those continue to exist.
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In the past year, countless friends have started conversations by talking about how they were saving money by doing this or that. Frugality is the new black.
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Whereas we know a multitude of people who are currently in New Jersey for the Super Bowl and noted no decrease in numbers on the big island, unlike in 2008.
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Sears, JC Penney, Red Lobster and Olive Garden are…aging.
Are they having problems because the middle class is cutting back, or because they’re mismanaged?
http://finance.yahoo.com/news/18-depressing-photos-show-why-122600100.html
http://www.triplepundit.com/2013/07/sears-worst-retailer-company-america/
http://www.fool.com/investing/general/2014/02/01/how-to-fix-red-lobster-and-olive-garden-in-1-step.aspx
I wonder if part of the problem is that the time has passed for the department store which offers everything? If you offer everything, you can’t specialize. You’ll be undercut by internet specialists do offer only one thing. You won’t have enough stock to satisfy the person who wants something a little unusual (in part due to streamlining inventory and “just in time.”)
Nordstrom has a fairly limited inventory, in that it offers greater depth in fewer lines than Sears. They sell clothing and accessories, but not everyday items, nor things like items for the home. Maybe they offer those items in other markets?
I’ve never been to Capital Grille. (Shouldn’t that be Capitol, as in capitol city?) We were served lukewarm microwaved pasta at Olive Garden more than a decade ago and have never gone back.
I think it would help middle-market restaurants to go upmarket by cutting down on the portions. There’s just too much food on the plate.
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The capital is the city; the Capitol is the building. I’m not sure which one the Grille should be.
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Is there an original Capital Grille? From the name, I had the impression of the sort of place politicians and lobbyists might visit for steak dinners.
There’s also capital, as in upper-case letters. Or, “capital!” an anachronistic form of praise.
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It seems like the move towards more local/artisinal food has really caught on in the last 5 to 10 years even in areas where chains used to dominate. It used to be that unless you were in a major metro area, Red Lobster was your only choice for seafood but now a lot of rural, suburban, and flyover country areas have locally-owned options that are far superior and not that much more expensive.
My spouse if from Rochester MN and every time we visit the parking lot of the Red Lobster is completely packed. I’ve never understood this since Rochester is a town with a lot of well-off people who can afford to be eating somewhere better than RL. I’ve reasoned that if you are the kind of person who is attracted to (or, maybe, willing to put up with) living in a place like Rochester you might value stability more than the average person and while RL isn’t good it is at least bad in a way that is predictable.
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The state that gave the world non-metaphorical Spam.
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It wasn’t mentioned in the article, but I think you see that pattern mentioned in the article very clearly when it comes to cars. The number of cars sold is rising a little bit, but still way down from the high. The price of the average car sold is still rising. The people who might have bought a new Accord are just running the old one into the ground while the higher end of the market is still selling.
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One possible explanation for cutbacks in middle class spending is that in previous years, middle class spending was often debt-fueled, for instance with home equity. During the housing bust, it was common to hear about inland California families who had bought a $200k house, seen the value of the house double, taken out $200k in equity (where it got spent was always hazy), and then wound up in a very bad situation once the value of the house dropped back to $200k. That exact story (with essentially those very same numbers) happened over and over again. $200k will buy you a lot of Applebees dinners.
These days, we very rarely set foot in a restaurant of the Applebees/Olive Garden/Red Lobster/Chilis type–they’re just really expensive for what you get.
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Yes, they are terrible value for money. Growing up with frugal parents we never ate out at places like that. The first time I went to one, I was shocked. It’s microwave dinner quality for twice the price of Chinese takeout. Also, we never shopped at JC Penny (although we did buy basics at Fred Meyer’s). For clothes it was always thrift stores, on-sale Hanna Andersson, and Nordstrom’s for once-every-few-years special occasion clothes and new school shoes. I have a memory of being in a mall and walking past a Gap and my dad pointing to it and saying I would never have clothes from there because they were too expensive.
Clearly the middle class are spending less, but I think the death of these particular brands might be due to other reasons. It would be interesting to see Target and Chipotle data, because I get the sense both of those businesses are doing quite well, and they cater to the middle classes but to a younger, “hipper” demographic.
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Also Marshall’s, Ross, Nordstrom Rack, and TJ Maxx are big with my mother. If you’re discerning and willing to sort through piles of dreck, you can dress in more expensive brands for less than what you’d pay at JC Penny. All my sports bras are Nike, and they all cost around $10 each at Ross.
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The original Capital Grille was in Providence, RI.
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