Our View: Retail trend reflects increasing squeeze of the middle class

February 11, 2014 

Black Friday Mall

(Patty Guerra/pguerra@modbee.com) - Bella Slade of Patterson and her sister, Alfa Swanson, visiting from Iceland, head for home after getting their deals at JC Penney early Friday after Vintage Faire Mall's midnight opening. November 26, 2010

Hourglass spending. High-end, low-end. Upscale, downscale. Where’s the middle? Shriveling.

Two weeks ago, J.C. Penney announced 2,000 layoffs and the closure of 33 stores. Sears announced it would close its flagship Chicago store. Since the 1990s, many midmarket retailers have closed, including 121-year-old Weinstock’s, Gottschalks and Mervyns.

Meanwhile, top-tier retailers such as Nordstrom and discount retailers such as Wal-Mart and Costco are doing just fine.

Reality is sinking in. The squeeze in the middle of the department-store industry mirrors the stagnation of middle-class incomes over the past 35 years. Consider them the coal-mine canaries. Unless we tackle rising income inequality, long-term economic prosperity will falter.

The New York Times’ Nelson Schwartz recently wrote that retailers either are offering rock-bottom prices “to attract the expanding ranks of penny-pinching consumers” or expanding high-end goods and services for richer customers. Retailers that focus on middle-class Americans are in “dire straits.” Bill Dombrowski, president of the California Retailers Association, called it “one of the most significant articles I’ve read in a long time.”

The trend is not solely because of the Great Recession; it dates back to the 1980s. Dombrowski spent 10 years with Carter Hawley Hale Stores, which acquired Weinstock’s after World War II. He recalled the middle-class jobs the company offered, noting that it had been an early adopter of the eight-hour workday and employee profit-sharing.

Since the 1980s, higher-income households have seen a disproportionate increase in their share of overall income, while middle- and lower-income households have seen a decrease. Weinstock’s couldn’t make it. Neither could Mervyns, or Gottschalks.

Some point to globalization, which “exposed the American middle class to a global labor market” driving down incomes, according to Sacramento developer Mark Friedman.

Friedman believes the trend of the past 20 years might have peaked and has begun to reverse. With concerns over loss of knowledge and craftsmanship at home, as well as industrial espionage, rising costs, infrastructure capacity and corruption in China and elsewhere, “some jobs are coming back home.”

Apple announced in November that it would build a manufacturing facility in Arizona. Wal-Mart said in January that it would increase U.S.-made products on its shelves by $50 billion in 10 years.

What about Central California? The economy is improving, but we’re not creating many jobs here. Friedman believes the Valley should focus on connections and innovations around agriculture and food, one of the Next Economy priorities.

Some economists suggest a return to the “golden rule” of shared prosperity: Wage growth should keep up with productivity growth. From the 1940s to the 1970s, the productivity of the U.S. workforce nearly doubled, and so did wages. From 1979 to 2011, productivity rose 80 percent, but middle-class wages were flat. All of the rewards went to the top 1 percent.

The hourglass retail spending story has struck a chord across the political spectrum. The days of denying the impact of rising income inequality are over. It’s an issue that defines this time. Potential solutions should be on the table. We must do something.

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