The Erosion of the Middle Class Via the Business World

In the Times, Nelson Schwartz looks at the erosion of the middle class via indicators in the business world—stores like Loehmann’s, J.C. Penney, and Sears and restaurants like Red Lobster and Olive Garden have declined in the past few years while businesses like Barneys which sell high-end goods, and bargain basement chains like Dollar Tree have seen gains on opposite ends:

Investors have taken notice of the shrinking middle. Shares of Sears and J. C. Penney have fallen more than 50 percent since the end of 2009, even as upper-end stores like Nordstrom and bargain-basement chains like Dollar Tree and Family Dollar Stores have more than doubled in value over the same period.

Competition from online giants like Amazon has only added to the problems faced by old-line retailers, of course. But changes in the restaurant business show that the effects of rising inequality are widespread.

A shift at Darden, which calls itself the world’s largest full-service restaurant owner, encapsulates the trend. Foot traffic at midtier, casual dining properties like Red Lobster and Olive Garden has dropped in every quarter but one since 2005, according to John Glass, a restaurant industry analyst at Morgan Stanley.

With diners paying an average tab of $16.50 a person at Olive Garden, Mr. Glass said, “The customers are middle class. They’re not rich. They’re not poor.” With income growth stagnant and prices for necessities like health care and education on the rise, he said, “They are cutting back.” On the other hand, at the Capital Grille, an upscale Darden chain where the average check per person is about $71, spending is up by an average of 5 percent annually over the last three years.

And the business world is certainly taking notice. In November, a Goldman Sachs report noted that the “hollowing out in the middle is real, it is not unique to the post-crisis period,” examining specifically the lost of mid-wage jobs over the course of the last two decades.

Meanwhile, Sara Campbell recently wrote a tribute to Loehmann’s at The Hairpin recently.

Photo: Nicholas Eckhart



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