America's divide between the affluent and everyone else becomes more obvious by the day. Mass retailers had trouble making money over the holiday season. Best Buy's holiday revenue was so disappointing that its turnaround strategy is in doubt. This invites comparisons to other declining retail chains like Sears and JC Penney. Contrast this holiday performance with American Express' stellar holiday profits. AmEx's cardholders have always been significantly more affluent than most other cardholders. High-income earners are having no difficulty shopping, while more downscale retailers have trouble attracting spenders. This was the holiday season, for crying out loud, when most retailers traditionally make most of their profits.
The pending end of the Loehmann's retail chain shows just how America has changed. Loehmann's sold brand names at discount prices. Brand name clothiers are turning away from discount outlets to protect their brands. Feedback from affluent clients is clear; they like the exclusivity of the clothes they wear and they don't want to see elite emblems worn by poor people. Middle-class consumers with aspirations toward brand-name lifestyles can't even afford the discounted versions of high-end apparel. They will have to become downwardly mobile and shop at other discounters out of necessity. There is no middle ground left for high-quality apparel at affordable prices. The center cannot hold, as it were.
The pending end of the Loehmann's retail chain shows just how America has changed. Loehmann's sold brand names at discount prices. Brand name clothiers are turning away from discount outlets to protect their brands. Feedback from affluent clients is clear; they like the exclusivity of the clothes they wear and they don't want to see elite emblems worn by poor people. Middle-class consumers with aspirations toward brand-name lifestyles can't even afford the discounted versions of high-end apparel. They will have to become downwardly mobile and shop at other discounters out of necessity. There is no middle ground left for high-quality apparel at affordable prices. The center cannot hold, as it were.
I blogged almost a year ago about how mass retail chains that don't appeal to affluent clientele are on their way to extinction. Rich people like to be seen spending money in public and crave the attention of personal shoppers. They have the money to support a high-ego, high-entropy lifestyle. Discount stores catering to the poor have a huge market and good pricing power over their supply chains. Mid-market retailers chasing a disappearing middle class consumer will suffer the most. The American middle class is heavily laden with debt and has experienced no real income gains since the early 1970s. Anyone catering to their aspirations is in for disappointment, because upward mobility is becoming an endangered species in America.
Full disclosure: No positions in any companies mentioned. I may do some shopping in the men's section at the Loehmann's in San Francisco before it closes.
