Retailers that cater to middle-class consumers are finding it increasingly hard to do business, The New York Times reports, largely because the only growth in spending has been among the richest Americans. The calculus isn't complex: Flat wages means more spending on essentials which means less spending on other things.
“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,” John Maxwell of PricewaterhouseCoopers told the Times. “You don’t want to be stuck in the middle.” The paper notes that retailers that target that demographic — like Sears and J.C. Penney — are "in dire straits," facing layoffs and store closures.
But those that cater to the luxury market are doing fine. Because:
[T]he current recovery has been driven almost entirely by the upper crust … . Since 2009, the year the recession ended, inflation-adjusted spending by [the top 5 percent of earners] has risen 17 percent, compared with just 1 percent among the bottom 95 percent.
The graph at right shows the percentage of all consumption expenditures from three economic groups: the top 5 percent of earners, the next 15 percent, and everyone else. That top 5 percent spends about as much money as the bottom 80 percent, according to data from the Institute for New Economic Thinking.
This is pretty amazing, but it shouldn't be. It follows along a line from a number of other economic indicators.
Wages have been flat.
The graph below shows the percentage at which wages changed by income bracket between 2000 and 2012, according to data from the Economic Policy Institute. The short story: Only those in the 70th percentile of incomes and above saw any growth, on average.
That, in turn, has widened the gap incomes between top and bottom.
People who earn less spend a larger percentage of income on essentials.
Using data from the Bureau of Labor Statistics, the graph below shows the overall percentage of income people in various income brackets spent in 2012, as well as the percentage of their earnings spent in several categories. In most income brackets, people spend more than they take in.
It's not a surprise that people who earn less money spend a higher percentage of that income on housing; after all, they have less money to spend. But it means that they have less money to spend on things that aren't housing or food or healthcare. Without an increase in salary, there's less money to spend on additional trips to Sears or Olive Garden.
The wealthy are saving far, far more than the middle and lower classes.
There are two things you can do with money if you have more of it than you need: you can spend it, or you can save it. The Times article indicates that the wealthy are doing more of the former, but they're also far more likely to do the latter.
The graph below comes via Business Insider, showing rates of saving at various income levels.
That's from last March, but the trend has continued; by the end of 2013, upper-income savings were described as "hoarding." When the rich don't spend, it makes it harder to increase wages for everyone else, since there are fewer service and retail establishments.
This is what the income gap looks like in practical terms. And it's bad news for Sears and Penney's — and their fired employees who, it is safe to assume, are largely not in that wealthiest 5 percent of income-earners.
This article is from the archive of our partner The Wire.