Hourglass spending. High-end, low-end. Upscale, downscale. Where’s the middle? Shriveling.
Two weeks ago, J.C. Penney announced 2,000 layoffs and closure of 33 stores. Sears announced it would close its flagship Chicago store. Since the 1990s, many mid-market retailers have closed, including 121-year-old Weinstock’s of Sacramento.
Meanwhile, top-tier retailers like Nordstrom and discount retailers like Wal-Mart and Costco are doing just fine.
Reality is sinking in. The squeeze in the middle of the department-store industry mirrors the stagnation of middle-class incomes over the last 35 years. Unless we come together as a nation and tackle rising income inequality, long-term economic prosperity will falter.
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“Middle class is eroding – ask the businesses,” read the telling headline in Monday’s Bee. The New York Times’ Nelson Schwartz wrote that retailers either are offering rock-bottom prices “to attract the expanding ranks of penny-pinching consumers” or expanding high-end goods and services for richer customers. Retailers that focus on middle-class Americans are in “dire straits.”
Bill Dombrowski, president of the Sacramento-based California Retailers Association, told The Bee’s editorial board that this was “one of the most significant articles I’ve read in a long time.”
The trend is not due solely to the Great Recession, but it dates back to the 1980s. Dombrowski spent 10 years with Carter Hawley Hale Stores, which acquired Weinstock’s after World War II. He recalled the middle-class jobs that store offered. It had been an early adopter of the eight-hour workday and employee profit-sharing.
The chart shows that since the 1980s, higher-income households have seen a disproportionate increase in their share of overall income, while middle- and lower-income households have seen a decrease. Weinstock’s couldn’t make it.
For other middle-tier stores, the middle-class squeeze of the last three decades was masked by easy credit. Then the bubble burst, ending the borrowing binge and concentrating spending at the low and high ends.
In the Sacramento region, Nordstrom at Arden Fair has gone upscale, but we don’t really have that many high-end incomes here. Middle-tier retailers struggle or reduce prices.
Sacramento developer Mark Friedman, whose family controls Arden Fair mall, says that the hourglass spending phenomenon really is about “the much bigger story of income inequality.” He points to globalization, which he says “exposed the American middle class to a global labor market.”
Friedman believes, however, the trend of the last 20 years may have peaked and has begun to reverse. With concerns about loss of knowledge and craftsmanship at home, as well as industrial espionage, rising costs, infrastructure capacity and corruption in China and elsewhere, “some jobs are coming back home.”
Apple announced in November that it would build a new manufacturing facility in Arizona. Wal-Mart said in January that it would increase American-made products on its shelves by $50 billion in the next 10 years.
What about Sacramento? The economy is improving, but we’re not creating many new jobs. Friedman believes Sacramento should focus on connections and innovations around agriculture and food, one of the Next Economy priorities.
He points to Davis-based Marrone Bio Innovations as an example. From lab to market, this company produces naturally derived products that control pests and increase crop yields while reducing use of chemicals.
Some economists also suggest a return to the “golden rule” of shared prosperity: Wage growth should keep up with productivity growth. From the 1940s to the 1970s, the productivity of the U.S. workforce nearly doubled, and so did wages. From 1979 to 2011, productivity rose 80 percent, but middle-class wages stagnated. The rewards went to the top 1 percent.
The hourglass retail spending story has struck a chord across the political spectrum. The days of denying the impact of rising income inequality are over. It’s an issue that defines this time. Potential solutions should be put on the table. We must do something.