Aim high or low, and skip the middle. The American middle class is shrinking, and for retailers that means that high-end and low-end stores do better than stores that target the middle market.
A 2005 McKinsey study of 25 industries found, according to Platt Retail Institute’s “Quarterly Retail Analytics” (for the 2006 second quarter), that “from 1999 to 2004, revenue growth for mid-tier products and services trailed the market average by nearly 6 percent per year.”
In the United States, Platt reports, the middle class has shrunk from 51.9 percent of households in 1980 to 44.9 percent in 2003. The result is that our country now has more wealthy people and more impoverished people and not so many in the middle.
Stores that serve the middle, Platt says, “are serving a shrinking market.”
Wal-Mart, according to Platt, provides an example of how this demographic shift is impacting the retail industry. The largest mass market retailer in the world is looking at going up-market by testing new store designs that feature dramatically different design, layout, merchandise selection and range of services.
Among changes coming at Wal-Mart, Platt says, are new signage and graphics to create eight principal shopping areas, a redesigned apparel area, expensive electronics and an improved apparel offering.
As for Wal-Mart and lower end shoppers, Platt puts it like this: "Wal-Mart itself faces competition from dirt-cheap dollar stores."
Yep, and aren’t dollar stores showing up on every street corner in every town across America. Seems that way anyhow.
More on this analysis from Platt in the next Retail Strategies.