Inequality is Upending Retail
Amazon is not solely to blame for mass store closures
Toys ‘R’ Us is just the latest in a long line of well-known retailers that have either shut down a significant number of stores or gone out of business altogether in the past few years. It’s common to see headlines warning of a “retail apocalypse,” referring to mass store and mall closures across the United States, but the growth of ecommerce — and Amazon, in particular — doesn’t deserve all the blame. Structural shifts in the distribution of income and wealth are also a major factor.
By some accounts, more than 8,000 retail stores closed in 2017 and thousands more were slated for closure in 2018 before the year even started. There’s an important trend to observe in these closures: many of the struggling retailers are the same ones that have been staples of US retail for decades. They’re the very retailers that prospered along with the middle class, and now that the middle class is shrinking, those retailers are struggling.
The decline of the middle class
Its prosperous middle class made the United States the envy of much of the world in the postwar years. As the economy grew, so too did the wages and living standards of most workers, but that changed in the 1970s when a new phase of capitalism — neoliberalism — came to dominate.
No longer did the middle class see the benefits of economic growth. Wages for the average worker have stagnated, while corporate profits have soared and a much greater share of national wealth has been funneled to the richest members of society. Between 1978 and 2014, worker compensation grew only 10.9 percent, while CEO pay packages soared by 997 percent — no, I’m not missing a decimal point.
As a result, the share of income held by middle-income households dropped from 62 percent in 1970 to 43 percent in 2014, while the share of upper-income households jumped from 29 percent to 49 percent over the same time period. That transfer of wealth from low-income households and the middle class has created a profound societal shift: since 1971, the percentage of people in the middle class has shrunk every year until it finally fell below 50 percent in 2015.
This is not simply some broad trend that isn’t observable on the ground. In a study of 229 metropolitan areas, Pew Research Center found that the share of middle-income residents fell in 203 of them, demonstrating that there’s a mass polarization happening across the country: people are either rising into the upper-income tier or falling from the comfortable middle class into the precarity of low-income life. And with that shift in economic class comes a change in how people shop.
The polarization of US retail
As more people find themselves on either side of the middle class, their spending habits change. They can either no longer afford to spend a little more for a better product, or they have so much more that they seek out a product that will enhance their social status. That forces them out of the retailers they previously frequented to find new stores to better serve their economic class.
This trend is reflected in the data. While balanced retailers — those traditional, middle-class stores that served the general public — grew only two percent in the past five years, price-based retailers saw revenue growth of 37 percent and premium retailers soared by 81 percent. The shift of customer allegiances based on the changing distribution of income is causing traditional retailers to shut down while stores like Dollar General and Dollar Tree, which serve low-income shoppers, are booming.
Hershey and Walmart advised their shareholders years ago that they would be repositioning in response to what they called “consumer bifurcation” — corporate speak for the polarization of the economy and the decimation of the middle class. Companies know what’s happening in the country; they know that people are getting poorer while their shareholders and executives are reaping the gains, and as long as they keep making a profit, they really don’t care how angry average citizens get because they’re still going to keep shopping.
It’s easy to point a finger at Amazon — I’m certainly not one of its apologists — but the blame for the decline of traditional retailers cannot be placed solely on Jeff Bezos. He may be a capitalist bloodsucker who’s amassed a $100-billion fortune while seniors slave away in his warehouses, but ecommerce is still only responsible for 9.1% of US retail sales. Record levels of inequality, and the structural changes in the economy that are both the cause and result of that reality, deserve far more of the blame than the ongoing shift to online shopping.
The changes occurring in our societies as a result of increasing inequality can be difficult to notice in our day-to-day lives. We’re like the frog sitting in the pot, failing to notice that the water around us is slowing warming to a boil that will kill us — but we can’t let it reach that point.
There’s a lot of anger right now — much of it justified — and it isn’t going to go away until the fruits of our labor are more evenly distributed instead of being hoarded by a small class of capitalists. Sure, we might be concerned with the closure of some of our favorite stores today, but that’s just one symptom of a cancer that continues to spread, infecting more and more aspects of our lives reducing the quality-of-life of the many to add more zeroes to the bank accounts of a small few. Those benefiting from inequality will not give up their spoils; the economy will only be rebalanced when the masses are ready to rise up and demand action.
