The last year has been tough if you’re a middle-of-the-pack consumer or retailer.
Driving the news: Per The Economist, hard economic times usually push middle-income earners to more budget-friendly brands, while wealthier consumers spend their discretionary income as they usually would… on things like diamond necklaces, we guess? The result is businesses on both ends of the spending spectrum get a boost while those in between are left hanging.
- In April, luxury conglomerate LVMH became Europe’s most valuable company and broke into the world’s top ten, hinting no signs of a slowdown in the broader sector.
- Meanwhile, brands like Walmart, McDonald’s and Dollarama are holding strong, sales for Loblaws’ No Name brand products are up, and IKEA’s pushing to expand.
Looking into the middle market: Bed Bath & Beyond has declared bankruptcy, Nordstrom decided to leave Canada, and Home Depot and Canadian Tire’s retail outlets are hurting. L’Oreal sold The Body Shop years ago and just bought a luxury soap brand for US$2.5B.
Why it matters: Inflation has been driven by rising prices across essentials like groceries, gas, and shelter costs, with low- and- middle-income households allocating a growing share of their spending to these essentials. As those consumers continue to trade down, the end result is a hit to the everyday brands that thrived when middle-class shoppers felt more flush.—SB