On State Street in downtown Chicago this week, a man trudged through the slush outside a soon-to-be-shuttered Sears, wearing a yellow signboard that read, “Store Closing Sale/Everything Must Go.” Across the street, inside a thriving Target store, shoppers thronged the checkout lanes. A block north, women were digging fistfuls of coupons out of their purses to buy discounted housewares and winter boots on clearance at Macy’s.
Which of these scenes is a metaphor for the American middle class? A front-page article in the Times this week chose Sears, pointing to its decision to close the State Street flagship in its hometown after thirteen years. The article also cited J. C. Penney, which is abandoning thirty-three stores and laying off two thousand employees, and Loehmann’s, the discounter on the verge of extinction, as signs that the average shopper can no longer support middle-market businesses. Corporations are giving up on the middle class, the article argued, instead catering to the wealthiest five per cent, which can afford three-thousand-dollar refrigerators and seventy-dollar steak dinners. “The post-recession reality is that the customer base for businesses that appeal to the middle class is shrinking as the top tier pulls even further away,” the article said.
There are two problems with this thesis. First, it conflates broad economic shifts with strategic mistakes made by individual businesses. Second, it implies that the middle class no longer has massive spending power.
Take Sears, the Willy Loman of retailers, hustling for one final sale as the world passes it by. Its struggles actually date to the late nineteen-eighties; for decades, it has fallen short in efforts to modernize its clothing styles and efficiently use floor space in its giant stores. Describing it as a bellwether for the middle class is like trying to analyze the current toy industry through sales of Cabbage Patch Kids. J. C. Penney, meanwhile, recognized that it needed an update, but its board chose poorly in hiring Ron Johnson, a former Apple executive, as its C.E.O. His decisions, including eliminating coupons, alienated loyal customers. Neither company distinguishes itself to a shopper who can compare prices and styles in seconds on a smartphone, then instantly order products for home delivery. Loehmann’s lost business to more-convenient alternatives: outlet malls, which sell designer goods at steep discounts and are often organized by brand, and flash-sale Web sites such as Gilt. Sears, J. C. Penney, and Loehmann’s aren’t failing because of changing demographics. They’re failing because they haven’t adapted to an era of increased access and information.
Other retailers that cater to the middle class have adjusted. Target has perfected a high-low strategy, stocking inexpensive detergent next to dresses designed by upscale brands. (Its latest collaboration, with the British label Peter Pilotto, launches on Sunday.) Macy’s has invested in technology to coordinate its stores with its Web site. Loehmann’s rival T. J. Maxx, with more than a thousand stores, has rapidly expanded, recognizing that increased scale will help it strike better deals with suppliers.
The warning that middle-of-the-road retailers would have to change or die was sounded as far back as 2003, in the marketing manual “Trading Up,” by Michael J. Silverstein and Neil Fiske. Because consumers had so much information and so many options, the authors explained, people were shifting their spending habits: they “traded down,” or saved money, on products when they cared only about getting the lowest price, and “traded up,” or paid more, for goods that were especially fashionable or functional.
That pattern has persisted through boom, bust, and feeble recovery. “It’s the segmentation of the American population that’s killing Sears and J. C. Penney—their inability to respond to the needs of heartland consumers, who remain a very rich force in the world of retail, who spend a lot of money and love to go shopping, still,” Silverstein, a senior partner and managing director at the Boston Consulting Group, told me.
So, where does the middle class shop today? According to Silverstein’s research, the middle quintile of American households—generally families with children, earning roughly seventy thousand dollars a year—stockpile household goods at Costco and purchase groceries at Trader Joe’s. Many have Amazon Prime memberships, which they wield strategically in cases where Amazon is the cheapest seller of a particular item. They browse for clothes at mall stores like Gap, but they buy only when the prices have been marked down at least once. At Target, they can trade down or up on the same shopping trip. Ubiquitous Macy’s coupons and T. J. Maxx’s designer discounts satisfy people’s desire to save money on quality products. Silverstein describes these customers as “heat-seeking missiles,” aggressively pursuing the best deals on a tight budget.
Of course, it’s also true that the middle class is being squeezed. It would be dangerous to conclude that inequality is not growing, or that it’s no big deal if it is. The M.I.T. economist David Autor has persuasively described an “hourglass economy,” in which most job growth occurs either in low-skilled, low-paying industries or in well-compensated fields requiring advanced education. Thomas Piketty, a prominent economist, explains the tendency in mature societies for wealth to concentrate in a few hands, in his book “Capitalism in the Twenty-First Century,” which will be published in English next month. This is problematic because, among other reasons, income inequality has been linked to health and social problems.
Silverstein, the marketer, shares the economists’ concerns about inequality. “The bottom twenty per cent of America has nothing,” he said. “The second twenty per cent have a little. The third have enough for a comfortable life. The fourth want more, but they live just fine. The top twenty percent have it all.” In his next book, slated for early next year, Silverstein hopes to demonstrate how the one per cent can help the ninety-niners—and, in doing so, enrich themselves. One of his suggestions will be for retailers to pay their employees a living wage.
Photograph by Sheng Li/Corbis.
