EDITORIAL: Perils of hourglass spending

FresnoFebruary 7, 2014 

J.C. Penney on Jan. 15 announced it will cut 2,000 jobs and close 33 stores as it tries to get back on the path to profitability.

ASSOCIATED PRESS FILE

Hourglass spending. High-end, low-end. Where's the middle? Shriveling.

Two weeks ago, J.C. Penney announced 2,000 layoffs and closure of 33 stores. Sears announced it would close its flagship Chicago store. Since the 1990s, many mid-market retailers have closed, including 105-year-old Gottschalks of Fresno and 121-year-old Weinstock's of Sacramento.

Meanwhile, top-tier retailers like Nordstrom and discount retailers like Walmart 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 last 35 years. Unless we come together as a nation and 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, told The Sacramento Bee's editorial board that this was "one of the most significant articles I've read in a long time."

The trend is not due solely to the Great Recession, but it dates to the 1980s. Dombrowski spent 10 years with Carter Hawley Hale Stores. He recalled the middle-class jobs that store offered. 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. Gottschalks and Weinstock's couldn't survive the squeeze.

For other middle-tier stores, the pressure on the middle class was masked by easy credit. Then the bubble burst, ending the borrowing binge.

Sacramento developer Mark Friedman, whose family controls Arden Fair mall, says that the hourglass spending phenomenon really is about "the much bigger story of income inequality." He points to globalization, which he says "exposed the American middle class to a global labor market."

Friedman believes, however, the trend may have begun to reverse. With concerns about 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 new manufacturing facility in Arizona. Walmart said in January that it would increase American-made products on its shelves by $50 billion in the next 10 years.

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. work force nearly doubled, and so did wages. From 1979 to 2011, productivity rose 80%, but middle-class wages stagnated.

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. Potential solutions should be put on the table.

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