The growing wealth gap between the richest and poorest Americans is increasingly creating a shopping chasm between those who are trading up and those who are trading down, experts say. What's missing is the middle.
“There is a two Americas kind of thing going on,” said Chris Christopher, director of U.S. and global consumer markets for IHS Global Insight.
The result is a retail marketplace in which even basic goods like socks and razors are becoming either incredibly cheap or extremely expensive, experts say.
Say you’re a guy who needs a new T-shirt. A shopper who feels like he has fallen down the economic ladder might opt for the $6.98 Kmart version. But a tech industry hotshot for whom things are looking up might be tempted by the $70 version available at Barneys.
Is there a new baby in the family? Cash-strapped shoppers might head to Wal-Mart for a $6.96 hoodie to bundle up that bundle of joy. The high-end shopper, on the other hand, might be looking toward the $135 cashmere version available from J Crew.
Looking to get back to the gym before the holidays? The 1 percent may go for Lululemon’s $98 yoga pants (despite their recent troubles) but the 99 percent is likely tempted by the $14.99 version available at Target.
On the high-end side, experts say retailers are seeing an opportunity to snag consumers who have fared well in the weak economic recovery and now want the best of everything — even if it’s a toothbrush, hair dryer, coffee maker or razor.
“A lot of even basic items have gone premium,” said Milton Pedraza, chief executive of the Luxury Institute, a consulting firm focused on wealthy consumers. He said one company even contacted him recently about the possibility of developing a luxury detergent.
On the lower-end side, experts say other retailers are seeing the opportunity — or necessity — of appealing to the wide swath of Americans who lost economic ground during the deep recession and weak recovery.
Brian Sozzi, chief equities strategist at Belus Capital Advisors, points to the success of stores such as Dollar Tree, which sells everyday items at deep discounts. But he also notes that, as competition increases to offer basic goods for the lowest price, consumers are at risk of getting a raw deal because the cheap goods are, well, cheap.
“A lot of retailers, they say they’re investing in price. What they’re basically doing is they’re taking quality out of the product and then offering the product at a cheaper price,” Sozzi said.
The bifurcation also is threatening the department stores, mall shops and other retailers that once appealed to America’s broad middle of the economic spectrum and now are at risk of getting squeezed out.
“It’s the middle tiers that are struggling for definition,” said Christopher, of IHS Global Insight.
The shift comes as some economists see more evidence that the wealth gap has widened in the four years since the nation officially came out of recession. An analysis of income gains between 2009 and 2012, released last month by economists at University of California, Berkeley, found that the top 1 percent of incomes grew by 31.4 percent during that three-year period of economic recovery, while the rest of the 99 percent saw income gains of just 0.4 percent.
Robert Shiller, the Yale professor who won the Nobel prize for economics earlier this year, told The Associated Press last month that rising inequality is “the most important problem that we are facing today.”
One big concern is that many Americans who consider themselves middle class are now worse off financially than they were five or six years ago, and therefore have less money to spend. The nation’s median household income is still below the level it was in 2007, the year the nation went into recession, after adjusting for inflation.
Experts say there is one thing that high- and low-end consumers have in common: They are all becoming savvier shoppers.
David Rabkin, senior vice president of consumer lending for American Express, which studies shopping trends, said its data has shown that shoppers of all income levels have become more careful about what they purchase. In addition, they are more mindful of a sale or good deal, and less likely to take on debt.
Rabkin thinks those savvy habits are here to stay.
“We don’t really expect people to go back to pre-recession behavior any time in the predictable future,” he said.