Disparity between upper income and lower income Americans has continued to grow because of education, experience and aptitude. We can see the differences by our tax roles (the upper 10% of Americans account for 50% of the taxes paid), graduation rates and purchasing behaviors. Despite this, we still have the most productive workforce in the world, and our standard of living is the highest in the world. This means that mass retailers will continue retailing to the needs of Americans applying the 80/20 rule to their products and measuring a successful sale based upon both sales velocity and the number of turns it represents (after it meets their gross margin expectations). This means that product differentiation through target market segmentation is alive and well as retailers apply demographic retailing to appeal to this niche segment. Retailers also recognize that the 20% has a tremendous appeal, since their average “ring” will be higher, and their very presence brings “cachet” to their all of their retail stores. For this reason we will see more premium products at… Read more »

An impressive report – and not in a good way. Wide economic disparity is ultimately destabilizing for our nation. Even the wealthiest among us must recognize America’s need to treat its lowest income workers decently and to promote a path to economic betterment. Our nation’s total strength and prosperity depends on it. So we don’t have to hand people a living, but we have to provide a safety net and reasonable incentives for them to participate in improving their own lives. This may be partly addressed by education reform. Not the “No Child Left…” stuff, which seems focused on preparing young people to fill the types of jobs we are losing overseas. With manufacturing and knowledge worker jobs in short supply, even college educated people are often stymied on the career ladder. So it seems our economic ladder has tiny steps at the bottom, huge gaps between the rungs in the middle, and fortress-like obstacles at the very top. Aspiring people need hope. Our system must not only have fair outcomes for those who achieve,… Read more »

The interesting contrast here is what we saw during the first couple weeks of January this year. At one point, we heard men explaining the reason they were willing to put their lives at such risk by going down into coal mines was for the high pay ($55,000 per year). At the same time, Wall Street was announcing record bonuses that averaged over $100,000 for 2005. Without running your own survey, it is difficult to dispute the results, but these types of statistics remind us of two things. I remember an on-the-street interview with a Wall Street Worker in the 90’s when the annual salaries on Wall Street were compared to the general public. That man’s reaction was, “Does it make any sense that a portion of one man’s life is worth so much more than any other’s?” The second thing, I believe, was from Thomas Jefferson who said, “The key to a successful democracy is a strong middle class.” The retail reaction must be to make sure our banners speak clearly of who we… Read more »

This will benefit the growth prospects of retailers serving the two poles. The retailers in the middle will continue to shrink as we have seen in the supermarket industry. Will the trend continue? Hard to say. We live in a free society where most of us have an opportunity to choose our income and decide how much we want to earn. When those in the lower income levels decide they need to earn more, they will make the proper lifestyle choices that enhances their income. I think right now, many people in lower income groups are very comfortable due to all the social safety nets.

As we move to a knowledge economy, those without knowledge will obviously be disadvantaged. However, the inflation adjusted numbers hardly show an “hourglass,” but rather that all segments grew and improved substantially, with those at the forefront of knowledge accelerating tremendously.

There is little problem with absolute dollars here. Problems occur in the area of perceived opportunities. Can the children of low-income families rise through education? Certainly, but I saw a study yesterday that showed their success in college is hampered by sub-average IQ’s. But that doesn’t mean their lives have to be any less rich and fulfilling. An issue receiving increased attention is just what does lead to happiness in a society?

I recommend two books that deal with this subject: The Paradox of Choice by Schwartz and The Birth of Plenty by Bernstein. Getting an understanding of this topic will make it clear that attacking those who are thriving doesn’t help those who aren’t. See also, Hayek’s The Road to Serfdom.

I do not think for one second that the averages here tell a good story – even relatively affluent people are achieving that affluence through higher levels of effort, primarily the mass social move to dual earner households, and this has reached very nearly the end of its ability to make up for the lack of real income growth. Most of the governmental (and non-governmental) statistics that index for inflation use the standard figures for inflation and costs of living, which are wildly misleading. They do not cover and do not pretend to cover the costs of education, health care, or housing, all of which have risen considerably faster than groceries or clothing. The cost of living statistics were originally created more to analyze the costs of sectors of our manufacturing base when large numbers of people lived on family owned multigenerational farms, never left for college, got doctoring from the country medico who made house calls, and operated in a limited cash economy. A middle class family today spends a trivial amount of their… Read more »

It is of great interest to me to see how persons respond to this topic. Yes, Ben, I also think there is overall quite a bit of insight on the panel regarding this. I read opinions and studies on this particular topic probably ten or twenty times a month. One aspect that fascinates me most is what appear to be two high-emotion perspectives. One seems to say, “The poor made their choices, so let them live with them or make different ones.” The other seems to say, “I am helpless as a poor person, because the rich have basically enslaved me.” I often see lots of anger on each side, which is an interesting question to probe on its own (but I won’t here). I know that this is a bit off-topic, but it is related and important, I hope. I am a little nervous and embarrassed to admit to you all that quite a few years ago, I found myself having unknowingly made choices that landed me in having to take welfare. Yep, I… Read more »

Yes, I agree with the Economic Policy Institute’s analysis. According to Alan Greenspan before completing his term as Federal Reserve Chairman, “The income gap between the rich and the rest of the U.S. population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself.” This is a strong statement from a very credible source.

I hesitate to make predictions about the future, but my advice to retailers: You better pick your pony.

Hooray for the BrainTrust Panelists who have (almost without exception) seen through the statistical clout of relativity created by the policy wonks at the Economic Policy Institute! The fact is that the absolute income and standard of living at all levels in this country is higher than ever before. Certain groups have seen their relative statistical status change to be sure, thus the “shrinking middle class.” And certain job classes have had absolute reductions in compensation as the value of the job declines because of more efficient alternatives. But the biggest driver of the growing statistical disparity is the relative rewards available to the “winners” in a knowledge/capital intensive economy that has a direct transfer mechanism for risk/reward (the equities market) available to all. It is high time we stop decrying proportional disparity and start nurturing and protecting the absolute standard of living available in this country for all. Otherwise we do risk an absolute decline as we lose ground to other economies. As for the impact of all this on retailers, the fact that… Read more »

The gap is growing and this is very dangerous territory for our society. Mr. Livingston writes, “When those in the lower income levels decide they need to earn more, they will make the proper lifestyle choices that enhances their income.” Uneducated poor people are generally unable to make proper lifestyle choices due to their socio-economic situation. An indigent, 20 year-old unmarried mother with a 10th grade education has limited lifestyle choices. Those of us with choices often fail to see the realities of the “have nots.” This is not going to get better any time soon, especially with the current administration in place. Retailers in the middle are in for some rough times.

The findings are right on, we only have to look at the retail landscape to see the results. In the grocery industry the middle road is being wiped out – the traditional grocery store is losing it’s niche to retailers on the low and high-end. The same thing is happening in numerous channels and there’s no indication the trend will change. If anything with the growth of the internet the trend will only expand further as consumers find more ways to shop for products / services that fit their economic / demographic status no matter what it might be.

Wal-Mart apologists seem to think it’s possible to target everyone, as indicated by their introduction of considerably higher priced items recently. Other retailers, as cited by Kai, apparently agree. Which ought to provide willfully lower incomed people, as cited by David, and those with sub-average IQs, as cited by Herb, with a sense of aspiration, as cited by James. So that’s that then, Wal-Mart still rules OK and retailers are playing a vital role in future economic growth by giving the rich what they want and can afford, and the poor something to work for.

My concern for the future is this: If many non-college educated workers have left manufacturing jobs and gone to low paying service jobs because of increased technology, efficiency, and off-shore manufacturing AND if more middle level jobs are going off shore because there are educated workers in other countries who can perform those jobs OR because the good paying jobs in a knowledge economy require more skills and tools, then the future of this country is in jeopardy. With a high drop-out rate in high schools, lower scores on standardized tests, and technology making it possible for many more good paying jobs to be performed elsewhere if there are not enough qualified workers here, then the likelihood of instability in this country is high. As the knowledge economy demands workers with more skills, it is imperative that business spends time thinking about the primary and secondary education system in this country. Having to create cash registers with pictures because there are not enough skilled employees to manage with the numbers does not bode well for… Read more »

Retailers to the middle class have the toughest challenges. They’re expected to provide decent service and decent assortments, yet their margins are challenged. It’s much harder to be J.C. Penney than Cartier or Dollar General. That doesn’t mean the middle class retailers will all disappear. But there will be fewer. There’s nothing to indicate that the hourglass economy will change its shape.