Retail Hates The Middle Class
What will retail look like in 2020?
According to NYU Stern in a joint project with IBM, the retail landscape is on course to change dramatically. Following the paper’s train of thought, drastic change is nothing new for the retail industry. From the early department stores wars to Walmart’s discount kingdom, the retail industry will undoubtedly mold to fit the explosion of Internet transactions.
Though, what stood out to me in the whole report was the hourglass effect, a term that was originally coined by Bain & Company to describe the 2011 shopping holiday season.
As consumers have adjusted their spending and buying behavior over the past few years to respond to having less disposable income and shrinking balance sheets, we have seen luxury retailers do well as have value-priced retailers.
At the same time, those positioned to serve the middle market have seen their share shrink. This trend will continue into 2020, resulting in a further squeezing of the middle market, particularly in the US but also in other mature markets.
I did write an article, called Income Disparity ETF, on how rising inequality would make hay for firms like Dollar tree, Dollar general, LVMH, Burberry, Tiffany's, etc. Unfortunately, all you monkeys dismissed the idea of creating an ETF that would index high and low end storefronts. Maybe it is time to refine the idea and revisit the trade?
Regardless, it seems that us rich folks might not have to wait until 2020 to enjoy shopping malls all to ourselves. From 2007 to 2011, luxury retail grew a booming 33.9%, and in a time where almost every other segment was pulling back, dollar stores also grew 43.1%.
Basically, is my city lush with inequality, or is valet parking and Bordeaux wine kiosks common at all malls?
Comments
Agree, agree and agree. But,
Agree, agree and agree.
But, its not so doom and gloom for the middle market. Those that are slow to adapt will cease to exist. Those that innovate will prosper.. Someone tell me why BBY still exists
Who knows what the world will
Who knows what the world will look like 2020, hopefully we recover from the depression of 2014 by then.
Well, as someone who works at
Well, as someone who works at a top consulting firm (not Bain) that just rolled off a retail project I would say that this article is both a "No duh" and a "chicken or the egg(?)". I mean, not to dig to much into my firm's intellectual property but basically when 2007/8 happened there was an obvious fall in the average net worth of the individual/family as well as numerous other factors (Yearly expected salary increases decline, uncertainty just who would be fired or not, etc...).
Basically this whole idea is stolen from the S&P retail industry report in 2010. When shit hit the fan the wealthy weren't going to stop going to Neiman Marcus, Nordstrom, etc... but they would decrease the average amount of items they purchased per visit. Meanwhile there was a 8% increase in the amount of families that relied on Government aid for necessity and the less fortunate had to take their coupon clipping, bargaining hunting strategy to a whole new level as to avoid bankruptcy. The middle class was stuck in-between knowing that they were easily dispensable to their firms but also making enough money to where, in normal economic climates, they could shop at the Neiman Marcus' of the World. This huge uncertainty as to whether their home would ever rise back to its former price, their 401(k) would rebound and they would keep their job forced them to be conservative (at least the educated middle class that make up XX%). THAT is why discount and luxury retailers have prospered from this economy. It isn't that they are slowly discriminating against those who may ruin their high class image or w/e that article says. The only valid argument may be that this prolonged recession may cause luxury stores to drop their cheaper brands because the middle class isn't shopping there anymore. But if anything that would be adaptation of luxury retailers to meet their reduced demographics demands, not an active surrendering of XX% of their customers to discount retailers.
Anyway, hopefully this drunken, yet (hopefully) informative rant made the slightest of sense. If not, I'll be back tomorrow to correct and make sure my firm isn't able to readily identify me lol.
ProspectiveMonkey: . The only
. The only valid argument may be that this prolonged recession may cause luxury stores to drop their cheaper brands because the middle class isn't shopping there anymore. But if anything that would be adaptation of luxury retailers to meet their reduced demographics demands, not an active surrendering of XX% of their customers to discount retailers.
Epic reply, here is the link to the full Bain newsletter: http://www.bain.com/Images/Bain%20Holiday%20Series...
See my WSO blogs here.
Just got home and have work
Just got home and have work shortly, thanks for the citation; i'll look over it when I get to work and hopefully have a more focused rebuttal.
In response to your first paragraph though I've been pondering at the bar and I think you have a good point. The landscape WILL change. In such a low margin industry companies are using all of their available resources to come up with the next big idea. For instance, 3-5 years ago Walmart never would have considered Amazon a competitor. Now it is a serious threat of theirs and they're dumping their FCFs into eCommerce and developing a mobile website (eventually an app?).
This means that stores are becoming more and more online-based so we may eventually see a disappearance of physical stores and a transition to a more "amazon-ian"-esqe (lol) business strategy. I mean think about how the reduction in overhead costs would lead to cheaper goods. AND if you had walmart, target, kohls, etc supporting more efficient shipping methods to a point where 1 day delivery or 6 hour delivery became the norm I see no reason for the local Target to exist (I'll just go online).
My only faith left in the modern day retailer is CostCo who sells at a maximum margin of 14% and gains most of its profits from membership fees. They have low maintenance stores, practically no staff and are very selective in what they sell. This could be the only kink in the chain, so to speak.
****BTW do you guys know where I could get a machine that cleans my asshole? I heard rumors of a WSO poster being an expert in the industry of this kind of stuff****
I do read your blogs!
I do read your blogs!
Anyway, from an shopping perspective, the middle market retailers aren't what they used to be. The quality of the clothes has been going down lately, quite sad actually since most of their clothes are still cute...
These days, it's more common to buy name brand stuff & shop online to find the best deal.
As long as interests rate are
As long as interests rate are at historic lows there will remain a lot of fake rich people... the one's that buy luxury items but are indebted up to their necks.
When easy credit stops we'll really find out how many positive net worth individuals remain. I don't think this group alone will be able to sustain malls for themselves. Plus it's usually only new money people that actually buy most of luxury items... you think old money cares about Bentley's, Zegna suits, Burberry coats, Rolex watches, etc.? Rich people, well those who will likely retain their wealth, don't put there capital towards depreciating assets such as cars.
mb666: Rich people, well
Rich people, well those who will likely retain their wealth, don't put there capital towards depreciating assets such as cars.
BLASPHEMY!