Decline of middle class impacting major brand sales

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  • #15136
    missing_kskd
    Participant

    http://uk.businessinsider.com/the-disappearing-middle-class-is-threatening-major-retailers-2015-10?utm_content=bufferacc70&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer?r=US&IR=T

    The Hershey Company on Wednesday reported flat sales for the most recent quarter and cut its profit outlook for the year.

    Company executives blamed the disappointing results in part on the changing income landscape in the US.

    […]

    The share of households in the middle tier of income earners has fallen to 43% from 55% since the 1970s, according to The New York Times.

    And those households in the middle tier haven’t gotten a raise since 1999.

    It’s time to really think about how demand actually happens and what it means for our economic future.

    #15154
    paulwalker
    Participant

    It is certainly true one can find industries or brands that are decreasing, but I’m not convinced it is because of the economy. I think most consumers are simply looking for quality.

    Take the auto industry. Please. But sales are up among mostly domestic brands…including Nissan and Toyota, who believe it or not build most of their autos in the U.S.

    People eating out are up, and people taking vacations are occupying hotel rooms at the highest levels since 2007, despite higher prices.

    The Christmas season will show some more results, but I hesitate to offer any predictions there, as again, consumers are becoming more picky and they know how to find the best deals.

    Then add on the backlash to so-called “Black Friday” sales…which I predict will become a thing of the past in the next few years because of on-line. Plus, many consumers realize that these so-called “deals” on Black Friday are few and far between and not worth getting up at 2 AM after Thanksgiving. Ask REI about that one!

    Instead, shopping on-line or even shopping at brick and mortar still mean something, and I tend to think most retailers are looking for good sale prices to gain traffic on the 3-4 weekends before Christmas. As it should be.

    One final thought, the on-line leader, Amazon, just today opened up its own brick and mortar store in University Village in NE Seattle. True, they are about 1-2 miles away from Seattle’s wealthiest neighborhoods, but still this is quite interesting from a marketing standpoint and have many scratching their heads. I suppose it is is a good place for an experiment, and we shall see if they add more such “real” stores.

    #15156
    missing_kskd
    Participant

    Paul, interesting take.

    Seems to me, the quality idea is ambigious.

    The things you cite are not typical for the 55 percent mentioned in the piece. Those people are experiencing a decline in disposable income due to wages being flat.

    People above that 55 percent are doing increasingly well the higher they are, with the top few percent in great shape.

    Major brands are sering price competition and lower volumes and margins on things more typically associated with that 55 percent at the bottom.

    They are responding with higher quality, because that is where the liquid dollars are, not that consumer preferences drive all of that. For the upper tier people, sure. All true. But not so true a Ross the board.

    The lower people are within that 55 percent, the more than are looking to live lean and spend little. Additionally, they are where the majority of the volume comes from.

    When Walmart is building niche type places to compete with the likes of whole foods, it’s obvious their own labor force is having trouble spending at the store.

    We have recycled a lot of people out of good paying jobs and into more basic income type jobs. Demand is following that trend, IMHO.

    #15161
    paulwalker
    Participant

    Well, I am relatively well-off, (certainly not rich), but I still search for bargains. I don’t think I am alone on this. Perhaps this comes from a very early start from parents who teach the right things.

    The point is the wealthy don’t necessarily spend willy-nilly, and perhaps this point is lost in the equation.

    If those of means choose to find low prices then perhaps it is because they choose to be smart and frugal, and one reason why they do well financially.

    #15166
    missing_kskd
    Participant

    Totally.

    I don’t think anything contrary is implied here either. Everybody wants good quality at a good price.

    Really, one of the implications unsaid in that piece is people who are forced to take what they can get at any price are no longer as willing to even do that deal.

    Thus, the major brands will need to improve their offerings, and that means an overall increase in product quality to capture more of where the money is. I doubt they will leave their current niches. More like expand with luxury type branding and packaging, perhaps with a modest quality bump to better their chances among those able to spend.

    It’s that able to spend that has them concerned. Should concern a lot of us actually, well off or not.

    In my current niche, we are seeing this as our product is a lifestyle good. There is price pressure, and we are holding, but it has required new branding, marketing and product offerings to do.

    Those should happen anyway, but it’s forced in a way now that simply wasn’t true before. In the past, it made business sense to do those things, but there was no real pressure to do them. Fat ‘n happy, so to speak. Lucky us.

    Not so fat now, and could be very, very unhappy, depending.

    The other observation settling into my mind is margin. Preserving that is getting damn tough! Seriously. It’s just a pinch overall. For “made in the USA” types, this presents a nice challenge. Of course, when we make it here and or can pay better wages, that funds better margins and or when it doesn’t, and it often doesn’t, then it funds volume, which is often just fine anyway.

    But when it’s all sort of on a decline, say a percent or so every few quarters, the writing is on the wall, which is what these guys are trying to say. (At least that is my read)

    Oh, here is another notable data point I just bumped into.

    Investors, and I’m writing about the VC types, are very sharply increasing the pressure to actualize recurring income from their investments and are beginning to prioritize getting that over a larger payday. Equity is nice, but getting that investment back to gamble with again has growing appeal. New deals are increasingly structured to look like more, or enough equity for compliance reasons, but actually behave more like straight up debt.

    It’s tightening up out there. Subtle, but happening.

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