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Everyone talks about the "Amazon effect" but the changing distribution of income is also worth considering: "Retail is suffering because the middle classes hav

Everyone talks about the "Amazon effect" but the changing distribution of income is also worth considering: "Retail is suffering because the middle classes have lost $1,355 trillion in income since 1970" http://www.smashcompany.com/business/retail-is-suffering-because-the-middle-classes-have-lost-1-355-trillion-in-income-since-1970?source=Snapzu http://www.smashcompany.com/business/retail-is-suffering-bec...

twblalock 6y ago
I don't buy that explanation. A lot of traditional mall and department store retail is suffering, but other kinds of retail is doing great selling to middle-class Americans. Examples include Home Depot, Lowes, Walmart, Target, and Amazon. They are winning because they offer more convenience to customers as a result of their size, selection, and online presence. Besides, this article is about a luxury retailer, not the kind of place middle-class Americans go to.
- nutshell89 6y ago
  Neiman Marcus suffers from two additional factors imo - a lot of their retail is in pricy urban real estate markets (Beverly Hills, Palo Alto, Stockton Street, Michigan Ave, Hudson Yards, Tysons, Houston's Galleria, etc.) where rents have escalated in recent years in comparison to cheap Amazon / Walmart style giant warehouses outside of town. Additionally, NM has been owned by PE for years putting financial strain on the company.
  - stainforth 6y ago
    Why don't those landlords just lower their rents to meet demand then?
    - samatman 6y ago
      If you went to any of those places before the pandemic, you wouldn't have seen any empty storefronts. Just because it squeezed Neiman Marcus, doesn't mean other stores could afford it. Of course, everything has changed now. Will landlords have to lower their rents in response? Maybe.
    - johnvanommen 6y ago
      > Why don't those landlords just lower their rents to meet demand then? Keep in mind how the concept of an "anchor tenant" works. For instance, Sears had leases that were as long as 99 years long, with rates that were as low as one dollar per year. (No joke: https://www.denverpost.com/2019/09/26/kmart-monaco-evans-denver-sold/ https://www.denverpost.com/2019/09/26/kmart-monaco-evans-den...) The way that the retail model was structured, back in the 70s and the 80s, was that the anchor would bring buyers into the area, and the landlord would make the lion's share of their income off of the stores around it, such as restaurants, jewelry stores, movie theaters, etc. If all that makes sense, you can see that a lot of these landlords would actually be thrilled to see these department stores go away, because then they could re-purpose the space into something that generates more money. Fry's Electronics, Sears, Macy's... they're all an example of this.
      - toast0 6y ago
        Where is Fry's acting as an anchor tenant? All of the stores I've seen were freestanding. Often in light industrial areas, not a whole lot of people are going to Fry's and then stop by at the bus upfitter, cause it's right there and they might as well get a commute vehicle for the whole office.
        johnvanommen 6y ago
        What I'm about to write is pure speculation on my part. Take it with a grain of salt. I used to work for Sears corporate. Sears got some incredibly good deals on leases. They were known to sign leases that are 99 years long: https://www.thedenverchannel.com/news/front-range/denver/councilwoman-stepping-in-to-remove-empty-sears-building-in-southeast-denver https://www.thedenverchannel.com/news/front-range/denver/cou... This creates a "tug-of-war" between the company that owns the building, and the company that is leasing it. For instance, in the article posted above, Sears was paying $33,333 a month for their lease. If the lease is 99 years long, and if the owner of the property can lease it to someone else for $50,000 a month, that creates a problem for the owner. Basically the owner is in a pickle: they want to lease it to someone else, but as long as Sears is paying the lease, they can't. So this creates a tremendous incentive for the property owner to buy out the lease holder. It also incentivizes Sears to let the property fall into disrepair. For instance, in the article I posted above, you can see that the community was eager to see something done about that derelict boarded up building. Here's some math: 1) Sears is paying $33,333 a month on a 99 year lease 2) The property's market value is $50,000 a month 3) There's 50 years / 600 months left on the lease If you do the math, that lease that Sears has might be worth ten million dollars or more. Again, pure speculation on my part, but I personally believe that a lot of companies are getting wise to this scheme. If you've ever gone to your local mall, and wondered why Sears and Roebuck is still open when there are four customers... well now you know.
- ashtonkem 6y ago
  Also changing tastes in clothing have reduced the gap between luxury clothing and cheap clothing by a lot, while home improvement needs remain more or less steady.
  - noitsnot 6y ago
    Cheap clothing has been taken to a whole new level where the quality at some of the mall stores is really terrible and the prices aren't realistic in comparison.
    - ethbro 6y ago
      I think the biggest difference has been increased discoverability. The point of NM et al. was that they currated what you could not obtain yourself (outside of a private buyer's agent and/or flight to NYC). With the internet... suddenly manufacturers could efficiently sell direct to consumer. Or at worse, via something like Huckberry that has far lower overhead. The value proposition of brick and mortar curration evaporated, and the only thing that kept them going was generational intertia and loyalty. And the problem with an aging customer base is eventually they age... terminally. Financial games and leverage may have exacerbated things, but you can only shrink for so long.
vl 6y ago
Middle class doesn’t shop at Neiman Marcus though.
- trey-jones 6y ago
  I think the suggestion here is that they used to, until the American Middle Class was forcibly merged into the American Lower Middle Class.
  - AnimalMuppet 6y ago
    But they still didn't. I went into Neiman Marcus in Dallas in 1991, just to look around. I found a leather jacket, with red... I'm not even sure what to call it. Paint? It was a layer on top of the leather, not dye. It looked very tacky. And it was $1000. In 1991. Well, even in 1991, the middle class had a lot less expensive places to buy tacky-looking junk.
  - freepor 6y ago
    No, Neiman Marcus has always been an upper crust store with extravagant Christmas catalogs.
- bsder 6y ago
  That wasn't always true. When I started interviewing out of grad school, I REALLY stretched to go buy a nice suit from Neiman-Marcus, a Valentino at $700 in 1995. The suit was gorgeous and the tailor at N-M did a beautiful job adjusting it to me. I could be considered, barely, middle-class--certainly the lower end at best. The suit absolutely paid for itself many times over--that's a different set of stories. That Valentino is now closer to $5,000. Inflation says that Valentino should be about $1,200. I suspect that even at $1,200 most students couldn't stretch for it today. So, is Neiman-Marcus to blame for going further upscale given that they probably can't make any money in the middle anymore?
  - whatok 6y ago
    All I've taken away from this is Valentino is more expensive in 2020 than it should be. By nature of you even being physically close enough to a Neiman Marcus in 1995, chances are you were of higher income than the rest of the country. They're still located in mostly more wealthy areas of the country.
apsec112 6y ago
That is quite the abuse of statistics! US GDP (edit: inflation-adjusted) was $5 trillion in 1970, and $19 trillion in 2019. The income percentage of the middle three quintiles went down from 53% to 45%, but 45% of $19 trillion is still much, much more than 53% of $5 trillion. Income for this group did not shrink, it just grew more slowly than other groups. The income was "lost" relative to a hypothetical world in which the economy was the same size as in 2019 but the middle quintiles had a larger income fraction, not the actual world in 1970 or any other past year.
- freepor 6y ago
  Please familiarize yourself with the terms “per capita” and “inflation.”
  - apsec112 6y ago
    The numbers I used were inflation-adjusted. I gave total income because that's what the parent comment referenced, but per capita income has grown too, although not as much (US population is up 60%, compared to total income growth for this group of 223%). Also, "please familiarize yourself" is a slightly rude way of putting it.
    - abfan1127 6y ago
      English might be his/her second language. Thank you for shining a light on the middle class income.
- economicslol 6y ago
  Speaking of abuse of statistics, lumping the bottom 20-40% with the top 60-80% of wage earners is extremely deceptive. It's well known that income growth is wildly different for those groups. Inflation adjusted wages for the median worker only increased by 9% from 1973 to 2014.
  - stanfordkid 6y ago
    True. But how much did the productive output of the average American increase? Can we really expect things to "always increase" -- including wages? To me this seems like an absurd idea. The end goal should be improving the median quality of life, through improving the efficiency of factors of production -- lower cost of goods... not through the expectation that the wages should arbitrarily grow linearly with GDP.
cactus2093 6y ago
It is also worth considering that basically all of the shift can be attributed to housing [0]. Exclusive zoning laws and decades of under-building have driven up housing costs so that they eat up more and more of the typical family's salary for non-homeowners (which is much of the middle class). [0] https://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-student-didnt-really-debunk-piketty-but-what-he https://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-s...

twblalock 6y ago

I don't buy that explanation. A lot of traditional mall and department store retail is suffering, but other kinds of retail is doing great selling to middle-class Americans. Examples include Home Depot, Lowes, Walmart, Target, and Amazon. They are winning because they offer more convenience to customers as a result of their size, selection, and online presence. Besides, this article is about a luxury retailer, not the kind of place middle-class Americans go to.

nutshell89 6y ago
Neiman Marcus suffers from two additional factors imo - a lot of their retail is in pricy urban real estate markets (Beverly Hills, Palo Alto, Stockton Street, Michigan Ave, Hudson Yards, Tysons, Houston's Galleria, etc.) where rents have escalated in recent years in comparison to cheap Amazon / Walmart style giant warehouses outside of town. Additionally, NM has been owned by PE for years putting financial strain on the company.
- stainforth 6y ago
  Why don't those landlords just lower their rents to meet demand then?
  - samatman 6y ago
    If you went to any of those places before the pandemic, you wouldn't have seen any empty storefronts. Just because it squeezed Neiman Marcus, doesn't mean other stores could afford it. Of course, everything has changed now. Will landlords have to lower their rents in response? Maybe.
  - johnvanommen 6y ago
    > Why don't those landlords just lower their rents to meet demand then? Keep in mind how the concept of an "anchor tenant" works. For instance, Sears had leases that were as long as 99 years long, with rates that were as low as one dollar per year. (No joke: https://www.denverpost.com/2019/09/26/kmart-monaco-evans-denver-sold/ https://www.denverpost.com/2019/09/26/kmart-monaco-evans-den...) The way that the retail model was structured, back in the 70s and the 80s, was that the anchor would bring buyers into the area, and the landlord would make the lion's share of their income off of the stores around it, such as restaurants, jewelry stores, movie theaters, etc. If all that makes sense, you can see that a lot of these landlords would actually be thrilled to see these department stores go away, because then they could re-purpose the space into something that generates more money. Fry's Electronics, Sears, Macy's... they're all an example of this.
    - toast0 6y ago
      Where is Fry's acting as an anchor tenant? All of the stores I've seen were freestanding. Often in light industrial areas, not a whole lot of people are going to Fry's and then stop by at the bus upfitter, cause it's right there and they might as well get a commute vehicle for the whole office.
      - johnvanommen 6y ago
        What I'm about to write is pure speculation on my part. Take it with a grain of salt. I used to work for Sears corporate. Sears got some incredibly good deals on leases. They were known to sign leases that are 99 years long: https://www.thedenverchannel.com/news/front-range/denver/councilwoman-stepping-in-to-remove-empty-sears-building-in-southeast-denver https://www.thedenverchannel.com/news/front-range/denver/cou... This creates a "tug-of-war" between the company that owns the building, and the company that is leasing it. For instance, in the article posted above, Sears was paying $33,333 a month for their lease. If the lease is 99 years long, and if the owner of the property can lease it to someone else for $50,000 a month, that creates a problem for the owner. Basically the owner is in a pickle: they want to lease it to someone else, but as long as Sears is paying the lease, they can't. So this creates a tremendous incentive for the property owner to buy out the lease holder. It also incentivizes Sears to let the property fall into disrepair. For instance, in the article I posted above, you can see that the community was eager to see something done about that derelict boarded up building. Here's some math: 1) Sears is paying $33,333 a month on a 99 year lease 2) The property's market value is $50,000 a month 3) There's 50 years / 600 months left on the lease If you do the math, that lease that Sears has might be worth ten million dollars or more. Again, pure speculation on my part, but I personally believe that a lot of companies are getting wise to this scheme. If you've ever gone to your local mall, and wondered why Sears and Roebuck is still open when there are four customers... well now you know.
ashtonkem 6y ago
Also changing tastes in clothing have reduced the gap between luxury clothing and cheap clothing by a lot, while home improvement needs remain more or less steady.
- noitsnot 6y ago
  Cheap clothing has been taken to a whole new level where the quality at some of the mall stores is really terrible and the prices aren't realistic in comparison.
  - ethbro 6y ago
    I think the biggest difference has been increased discoverability. The point of NM et al. was that they currated what you could not obtain yourself (outside of a private buyer's agent and/or flight to NYC). With the internet... suddenly manufacturers could efficiently sell direct to consumer. Or at worse, via something like Huckberry that has far lower overhead. The value proposition of brick and mortar curration evaporated, and the only thing that kept them going was generational intertia and loyalty. And the problem with an aging customer base is eventually they age... terminally. Financial games and leverage may have exacerbated things, but you can only shrink for so long.

vl 6y ago

Middle class doesn’t shop at Neiman Marcus though.

trey-jones 6y ago
I think the suggestion here is that they used to, until the American Middle Class was forcibly merged into the American Lower Middle Class.
- AnimalMuppet 6y ago
  But they still didn't. I went into Neiman Marcus in Dallas in 1991, just to look around. I found a leather jacket, with red... I'm not even sure what to call it. Paint? It was a layer on top of the leather, not dye. It looked very tacky. And it was $1000. In 1991. Well, even in 1991, the middle class had a lot less expensive places to buy tacky-looking junk.
- freepor 6y ago
  No, Neiman Marcus has always been an upper crust store with extravagant Christmas catalogs.
bsder 6y ago
That wasn't always true. When I started interviewing out of grad school, I REALLY stretched to go buy a nice suit from Neiman-Marcus, a Valentino at $700 in 1995. The suit was gorgeous and the tailor at N-M did a beautiful job adjusting it to me. I could be considered, barely, middle-class--certainly the lower end at best. The suit absolutely paid for itself many times over--that's a different set of stories. That Valentino is now closer to $5,000. Inflation says that Valentino should be about $1,200. I suspect that even at $1,200 most students couldn't stretch for it today. So, is Neiman-Marcus to blame for going further upscale given that they probably can't make any money in the middle anymore?
- whatok 6y ago
  All I've taken away from this is Valentino is more expensive in 2020 than it should be. By nature of you even being physically close enough to a Neiman Marcus in 1995, chances are you were of higher income than the rest of the country. They're still located in mostly more wealthy areas of the country.

apsec112 6y ago

That is quite the abuse of statistics! US GDP (edit: inflation-adjusted) was $5 trillion in 1970, and $19 trillion in 2019. The income percentage of the middle three quintiles went down from 53% to 45%, but 45% of $19 trillion is still much, much more than 53% of $5 trillion. Income for this group did not shrink, it just grew more slowly than other groups. The income was "lost" relative to a hypothetical world in which the economy was the same size as in 2019 but the middle quintiles had a larger income fraction, not the actual world in 1970 or any other past year.

freepor 6y ago
Please familiarize yourself with the terms “per capita” and “inflation.”
- apsec112 6y ago
  The numbers I used were inflation-adjusted. I gave total income because that's what the parent comment referenced, but per capita income has grown too, although not as much (US population is up 60%, compared to total income growth for this group of 223%). Also, "please familiarize yourself" is a slightly rude way of putting it.
  - abfan1127 6y ago
    English might be his/her second language. Thank you for shining a light on the middle class income.
economicslol 6y ago
Speaking of abuse of statistics, lumping the bottom 20-40% with the top 60-80% of wage earners is extremely deceptive. It's well known that income growth is wildly different for those groups. Inflation adjusted wages for the median worker only increased by 9% from 1973 to 2014.
- stanfordkid 6y ago
  True. But how much did the productive output of the average American increase? Can we really expect things to "always increase" -- including wages? To me this seems like an absurd idea. The end goal should be improving the median quality of life, through improving the efficiency of factors of production -- lower cost of goods... not through the expectation that the wages should arbitrarily grow linearly with GDP.

cactus2093 6y ago

It is also worth considering that basically all of the shift can be attributed to housing [0]. Exclusive zoning laws and decades of under-building have driven up housing costs so that they eat up more and more of the typical family's salary for non-homeowners (which is much of the middle class). [0] https://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-student-didnt-really-debunk-piketty-but-what-he https://www.vox.com/2015/4/1/8320937/this-26-year-old-grad-s...