The Wealth Gap is a retail problem

This month marks the 10 years of economic growth on Wall Street, not so for Main street.

That’s hardly good news for retailers, considering how many have had to shutter stores, more so far this year than all of 2018, and work to address new shopping preferences and, in some cases, declare bankruptcy. If howls of a “retail apocalypse” in recent years were overly dramatic so is a retail miracle. But e-commerce is not the sole reason for brick and mortar failures. The brick and mortar stores hold a lot of responsibility for their failures.

Some retailers are doing better than others. Luxury brands and discount chains are holding on to their traffic and sales, for the most part. Those whose traditional customers are in the middle, however, are finding it difficult to sell at full price, move their discretionary or premium goods, and grow their base. And while the rise of e-commerce is often blamed for store closures and bankruptcies, that’s not the whole story. The American Middle Class emerged from an era when unions fought for higher wages, better working conditions, and a 40 hour work week. Brick and mortar catered to these individual

The middle class started to decline some 4 decades ago. No one seemed to pay attention to this except for a very few. From 1970 to 2012, the U.S. went from having just over half of households with incomes within 50% of the median to 42.2% in 2012, the year of economist Alan Krueger’s speech on his notion of “the Great Gatsby curve“— his finding of “persistence in the advantages and disadvantages of income” that are passed from generation to generation.  Now it takes two incomes to do the job one used to handle.

The generational improvements in the standard of living was the hallmark of the middle class, this has now diminished considerably. There was a time, in the 50’s where the children of the middle class grew up to make more than their parents did. Now it is more like fifty percent. Meanwhile, nondiscretionary expenses are rising for everyone. “The bottom 40 percent of earners had less discretionary income in 2017 than they did 10 years ago, and the next 40 percent saw only a minor increase,” the Deloitte report said. “Only 20 percent of consumers were meaningfully better off in 2017 than they were in 2007, with precious little income left to spend on discretionary retail.” 

There is more than e-commerce draining the budget of the consumer, rising health costs, student loan debt , customer fickleness, and frequent markdowns are contributing to the fall of the brick and mortar.

If faced with an unexpected debt of $400, 27 percent of households would have to borrow or sell something to meet the debt, and 12 percent could not cover it at all. One fifth of the adults in this country faced unexpected major medical bills, and 25 percent of the Americans in this country skipped needed medical care altogether because of the cost.

A growing share of the millennial’s wallet is going toward health care expenses, housing costs, and education, highlighting not so much a change in the consumer, but rather a change in the economic pressures that the young consumer is under.” The young consumer today has outside financial responsibilities as well and not much disposable income. Pile on state and local tax and fee increases, plus cuts in government services and support, “and you have the perfect storm,” says retail analyst Nick Egelanian, president of retail development consultants Siteworks. “I don’t see any sign of this trend abating, and what is most stunning is that this has all been happening at a time when we have effective full employment,” he told Retail Dive in an email. “Imagine what will happen when we have a real recession. Many working-class Americans will be hurting even more acutely than today and many will go without basic needs.” The fact that unemployment is at its lowest, it’s pretty scary to think that this is not a as great a thing as we all thought it was because if unemployment rises, there will be difficult times ahead, worse than we want to think about.

The difficulty of running a small store is closing off a path for immigrants and others, who once regularly opened shops on city corners and thrived sufficiently to send their children to college and pay their workers a living wage. But now, the mom and pop businesses are vaporizing at an accelerated rate, these were after all kinder places to work, you were employing your neighbors. With fewer and fewer Americans able to grow — or even maintain — wealth, more and more are turning to lower cost retail providers,” Egelanian said. “The fastest growing retail category in America is dollar stores.” Does this not ring a bell concerning the condition of the middle class? The Dollar Store.

It appears that over time the retail stores are the answer, as they strive to provide the best in customer service this would require more skilled workers and higher paying jobs. The theory of ‘trickle down’ benefit never came true, and as the country has continued to double down on the strategy — the result has been soaring deficits and a disproportionate effect on working class, and even middle-upper class, Americans,” Wealth concentration coincides with the tax cuts for the wealthy. “Somewhere in the range of 60-70% of Americans are unable to handle an unexpected $1,000 bill, and health care costs are the single biggest cause of debt collection, house foreclosures, and personal bankruptcies. This is a profound percentage, one would think in a country as rich as we are that $1,000 bill could have this profound of an effect on this many households.  Middle-class spending and the wealth gap, who would have thought this would play such havoc in the retail world. It appears the general consensus is that e-commerce was to blame for brick and mortar closings and that is where the thought process stopped, it is so much more than that and it is not good news.

Courtesy Deep Dive