The Middle Class Is Steadily Eroding. Just Ask the Business World.

Capital Grille, Scottsdale, AZ

Capital Grille, Scottsdale, AZ

In Manhattan, the upscale clothing retailer Barneys will replace the bankrupt discounter Loehmann’s, whose Chelsea store closes in a few weeks. Across the country, Olive Garden and Red Lobster restaurants are struggling, while fine-dining chains like Capital Grille are thriving. And at General Electric, the increase in demand for high-end dishwashers and refrigerators dwarfs sales growth of mass-market models.

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.

More at the Top“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.

In response to the upward shift in spending, PricewaterhouseCoopers clients like big stores and restaurants are chasing richer customers with a wider offering of high-end goods and services, or focusing on rock-bottom prices to attract the expanding ranks of penny-pinching consumers.

“As a retailer or restaurant chain, if you’re not at the really high level or the low level, that’s a tough place to be,” Mr. Maxwell said. “You don’t want to be stuck in the middle.”

Although data on consumption is less readily available than figures that show a comparable split in income gains, new research by the economists Steven Fazzari, of Washington University in St. Louis, and Barry Cynamon, of the Federal Reserve Bank of St. Louis, backs up what is already apparent in the marketplace.

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Even more striking, the current recovery has been driven almost entirely by the upper crust, according to Mr. Fazzari and Mr. Cynamon. Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study, which was sponsored by the Institute for New Economic Thinking, a research group in New York.

The effects of this phenomenon are now rippling through one sector after another in the American economy, from retailers and restaurants to hotels, casinos and even appliance makers.

For example, luxury gambling properties like Wynn and the Venetian in Las Vegas are booming, drawing in more high rollers than regional casinos in Atlantic City, upstate New York and Connecticut, which attract a less affluent clientele who are not betting as much, said Steven Kent, an analyst at Goldman Sachs.

Among hotels, revenue per room in the high-end category, which includes brands like the Four Seasons and St. Regis, grew 7.5 percent in 2013, compared with a 4.1 percent gain for midscale properties like Best Western, according to Smith Travel Research.

While spending among the most affluent consumers has managed to propel the economy forward, the sharpening divide is worrying, Mr. Fazzari said.

Dollar General“It’s going to be hard to maintain strong economic growth with such a large proportion of the population falling behind,” he said. “We might be able to muddle along — but can we really recover?”

Mr. Fazzari also said that depending on a relatively small but affluent slice of the population to drive demand makes the economy more volatile, because this group does more discretionary spending that can rise and fall with the stock market, or track seesawing housing prices. The run-up on Wall Street in recent years has only heightened these trends, said Guy Berger, an economist at RBS, who estimates that 50 percent of Americans have no effective participation in the surging stock market, even counting retirement accounts.

Regardless, affluent shoppers like Mitchell Goldberg, an independent investment manager in Dix Hills, N.Y., say the rising stock market has encouraged people to open their wallets and purses more.

“Opulence isn’t back, but we’re spending a little more comfortably,” Mr. Goldberg said. He recently replaced his old Nike golf clubs with Callaway drivers and Adams irons, bought a Samsung tablet for work and traded in his minivan for a sport utility vehicle.

And while the superrich garner much of the attention, most companies are building their business strategies around a broader slice of affluent consumers.

At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

“This is a person who is willing to pay for features, like a double-oven range or a refrigerator with hot water,” said Brian McWaters, a general manager in G.E.’s Appliance division.

The  Café line

The Café line of refrigerators and other appliances, which is directed at the high end of the market. Credit Angela Shoemaker for The New York Times

At street level, the divide is even more stark.

Sears and J. C. Penney, retailers whose wares are aimed squarely at middle-class Americans, are both in dire straits. Last month, Sears said it would shutter its flagship store on State Street in downtown Chicago, and J. C. Penney announced the closings of 33 stores and 2,000 layoffs.

Loehmann’s, where generations of middle-class shoppers hunted for marked-down designer labels in the famed Back Room, is now being liquidated after three trips to bankruptcy court since 1999.

The Loehmann’s store in Chelsea, like all 39 Loehmann’s outlets nationwide, will go dark as soon as the last items sell. Barneys New York, which started in the same location in 1923 before moving to a more luxurious spot on Madison Avenue two decades ago, plans to reopen a store on the site in 2017.

Investors have taken notice of the shrinking middle. Shares of Sears and J. C. Penney have fallen more than 50 percent since the end of 2009, even as upper-end stores like Nordstrom and bargain-basement chains like Dollar Tree and Family Dollar Stores have more than doubled in value over the same period.

Endangered Species

Competition from online giants like Amazon has only added to the problems faced by old-line retailers, of course. But changes in the restaurant business show that the effects of rising inequality are widespread.

A shift at Darden, which calls itself the world’s largest full-service restaurant owner, encapsulates the trend. Foot traffic at midtier, casual dining properties like Red Lobster and Olive Garden has dropped in every quarter but one since 2005, according to John Glass, a restaurant industry analyst at Morgan Stanley.

With diners paying an average tab of $16.50 a person at Olive Garden, Mr. Glass said, “The customers are middle class. They’re not rich. They’re not poor.” With income growth stagnant and prices for necessities like health care and education on the rise, he said, “They are cutting back.” On the other hand, at the Capital Grille, an upscale Darden chain where the average check per person is about $71, spending is up by an average of 5 percent annually over the last three years.

LongHorn Steakhouse, another Darden chain, has been reworked to target a slightly more affluent crowd than Olive Garden, with décor intended to evoke a cattleman’s ranch instead of an Old West theme.

Now, hedge fund investors are pressuring Darden’s management to break up the company and spin out the more upscale properties into a separate entity.

“A separation could make sense from a strategic perspective,” Mr. Glass said. “Generally, the specialty restaurant group is more attractive demographically.”

A version of this article appears in print on February 3, 2014, on page A1 of the New York edition with the headline: The Middle Class Is Steadily Eroding. Just Ask the Business World

 

 

An Uncomplicated Christmas

Seatrs Christmas CatalogIt was the year 1961 and we were planning our Christmas shopping.

There weren’t many choices for us living in a small town in the Pocono Mountains of

Pennsylvania. In those early years much of our shopping was done through catalogs. We would get the big catalogs and also the Christmas issues from Sears Roebuck & Co. and Montgomery Ward.

We would spend hours looking through those catalogs and try to decide what to get other family members. I had received many presents in my younger years from one of those catalogs. The presents were always delivered by mail. No UPS back in those days.

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Step Right Up, Amigos – Have a Coke!

Drinking Coke was synonymous with fighting the enemies of freedom and democracy. Vintage WWII Coca Cola Ad 1945

Drinking Coke was synonymous with fighting the enemies of freedom and democracy. Vintage WWII Coca Cola Ad 1945

The heartbreaking tragedy on the Leyte Island of the Philippines which bore the brunt of the devastation of Typhoon Haiyan has a special relevance today when we honor our veterans. Thoughts go back to another fall day, October 1944 when General Douglas MacArthur landed on that very same island keeping his promise “to return” and liberate the Philippines.

Wherever the American army went so did Coca cola.

Coke went to remarkable lengths to make sure their soft drink was never far from the front lines, wasting no time in running an ad celebrating our shared victory in the Philippines.

“Naturally Filipinos thrilled when their Yankee comrade-in-arms came back to the Philippines,” the copy for this 1945 Coke ad declares.

“Freedom came with them.”

“Fair play took the place of fear. But also they brought back the old sense of friendliness that America stands for.”

Now the Filipinos need us again

Let us not forget that Filipinos bravely helped our American soldiers, let us not forget them now. We shall return…with help.

 

 

 

Standing with the Family Farmer

Farm Aid 2013

Farm Aid 2013

On Saturday, the great Pete Seeger took center stage, along with John Mellencamp, Neil Young, Willie Nelson and Dave Mathews at the 28th edition of in Farm Aid, this year held in beautiful Saratoga Springs, NY. In a Huffington Post article Willie said this:  “Every year, come harvest season, we gather for the annual Farm Aid concert. Artists, farmers, activists and eaters, we come together to recognize the crucial importance of family farmers. We take account of how far we’ve come and we renew our spirits for the fights ahead. We stand with family farmers.”

“Today, as the minutes tick down to another farm bill deadline, people in towns and cities everywhere are taking matters into their own hands. They’re standing up with family farmers and insisting on food that is best for them and their families. They’re seeking out food from family farms at farmers markets, grocery stores and restaurants. They are organizing to change the food served in schools, hospitals and public institutions. They’re making their voice heard and voting for family farm food every way they can. Our message is hard to miss. America needs family farmers. Congress, can you hear us?”

To read the entire article click here.

Deserve A Glance Back?

Born In the 60s

Just finished reading two wonderful posts, America World Peace Keeper, by our very own contributor, Sally Edelstein, and Pushing America’s Reset Button by Maggie Van Ostrand. Both author’s reflect on our country’s “good old days,” when America garnered the respect of the world and was considered the Ambassador of Peace and when “Made in America meant the product might even outlast the buyer.”

There seems to be a lot of action on Facebook lately with postings like the image above, or this one:  “For Anyone who was born in the 50s, 60s, 70s or 80s…We are the last generation who played in the streets. We are 1st who played video games. We walked over a mile with no worries on being taken. We learned how to program the VCR before anyone else. We played from Atari to Nintendo. We are the generation of Tom and Jerry, Looney Toons and Captain Kangaroo. We traveled in cars without seat belts or air bags. We were taught to say please and thank you, and to have respect for our elders. We were taught to say ‘yes sir’ and ‘no sir’ and to lend a helping hand to those in need. We were taught to hold the door for the person behind us, say ‘excuse me’ when it’s needed and to love people for who they are and not for what we can get from them. We were also taught to treat people the way we want to be treated.” We did not have flat screens, surround sounds, facebook, twitter or computers. Nevertheless, we had a great time!”

Is it because we are becoming weary and frightened by the explosion of fast technology and the way the world may be headed, or are we just looking back through rose-colored glasses?  What do you think? We’d love to hear your thoughts.

Graphic (not including words) by www.spreadshirt.co.uk

Come to the table and eat

Baby Deer

I had an unusually trying day the other day. Confrontations, intense emotions, in your face accusations and downright hostility. I remembered an old Italian tradition – if you can get people to sit down at a table with a good meal, half your problem is solved “venire al tavolo e mangiare” –  “Come to the table and eat.”  My mother was a big proponent of that adage – but of course she was a remarkable cook!  Me, not so much. So instead of a homemade meal, a good restaurant was chosen, and the emotions  and the situation was made better. Driving home afterwards, on a stretch of highway that is fairly desolate, going about 50mph, I saw some gangly legs in my headlights. Slowing down, then coming to a crawl, there were about 15 baby deer in front of my vehicle crossing the road. They stopped and stared, I stopped and stared, and thanked our higher power that I did not hit any of them. They are God’s beautiful creatures. It was a wonderful end to a not so wonderful day.

Getting Back to “Real”

Rocking ChairsI got two messages today from people I feel are worth listening to. Of course they weren’t just for me, but somehow they felt that way. One was Seth Godin who said “Racing to build your organization around the latest social network tool or graphics-rendering technology permits you to spend a lot of time learning the new system and skiing in the fresh powder of the unproven, but it might just distract you from the difficult work of telling the truth, looking people in the eye and making a difference.”

That’s what it feels as though I have been doing this entire past month (or maybe even a bit longer). I have been so engrossed in trying to navigate WordPress and plug-ins and learning new systems that I really haven’t had quality time to connect with our community. OK, I’m one person, and maybe have the mindset that it is difficult  to delegate, but I feel I have to learn “it” so I can know how to deliver “it”.

Well, I said I got two messages today, the other was from inspirational writer Holly Gerth who just said “Let’s hang out” – which meant to me that we have been out of the loop – so let’s get back together – I thought that was appropriate too.  So, I just wanted to say that you can reach me here, on the blog of course, and also at Facebook – or Pinterest. Would love to talk with you.

 
Photo: .front-porch-ideas-and-more.com

Change

Friends ForeverFinally updating everything, not only the blog, but the pic too. Have been incredibly frustrated trying to get all of this techno stuff in sync. Don’t know how many times the poor techies at Yahoo have received my calls of desperation, and thankfully, not hung up on me. The Our USA WordPress site is not perfect, but the techies have patiently walked me through it, and will probably have to do it all again. Trying to figure out how to get different images and links on the pages so I can celebrate individual contributors. Trying to figure out the differences between posts and pages, and basic theme customization and how to do sharing. Has anyone read the WordPress Codex lately? Frankly I have wanted to give up many times, but I guess it’s my Italian stubbornness that pushes me on. Well, I have said basta already! Rather than go for perfect, I am going for the best of what I am able to do right now and figure I will learn as I struggle on. And I guess that’s all we can ever ask of ourselves and each other.