Stocks Point to a Dying Middle Class
Quick, what are the top ten performing retail stocks this year?
Number one is Dollar Tree, one of those stores where everything costs a dollar, everything has “China” somewhere on the label, and quality is never the point–of–purchase reason. Number three is Dollar General, followed by Big Lots. Family Dollar is sixth. That’s a lot of dollars, but they’re mostly transacted in Georges, not Benjamins. Wal–Mart is number ten. Their market strategy is “cheap über alles.”
At the other extreme, there are a few premium retailers. Whole Foods is number two. Macy’s is fifth. Nordstrom is ninth. They target customers in the upper income strata—the buyer segment most mainstream, middle–class people hope to join. Someday.
But entirely missing are any retailers who aim to sell to the mainstream middle. I suppose you could make the argument that Vitamin Shoppe is a middle class retailer (I wouldn’t) and one could argue that Costco aims at middle–class thrift buyers. You could also point to Macy’s attempts to down–market itself. In any event, the economy won’t be fixed on the backs of chunky vitamins and mega–packs.
In fact, retailers who sell to the middle class are hurting. JC Penny’s stocks are down 5.5% from the prior period. America’s mainstream–middle retailer Target is off 12.4 percent in share value. Kohl’s is negative too. Even Safeway, Fresh Market and Kroger took big hits this year.
What does it all mean?
- Middle class purchasing power is shrinking.
- As the middle class shrinks, its drop–offs won’t suddenly become homeless. First, they will travel through the economic tier that buys cheap crap from China. With luck, they’ll bottom out there.
- As more and more middles shop low, more of them will be forced to accept lower–middle and then lower income–strata jobs. When middle–class buyers disappear, employers don’t have the margins to pay middle–class wages.
- Rich people will only cover a small subset of the buying burden. Even if they have most of the money, they can’t—or won’t—support the American jobs base. Among the rich, there simply aren’t enough backs (to clothe) or mouths (to feed) to support a vibrant economy.
- Of the top twenty retailers, only about one fifth sells to the rich. Most sell to the poor. Not many sell to the middle anymore.
- This is happening now. Even positive economic news isn’t necessarily positive news for the middle class.