The State of Retail and the Hourglass Economy

The bigger picture behind the industry’s woes

Last month, Signet reported negative comps. Of course, it’s not alone. Tiffany’s U.S. comps have been sinking for some time. Blue Nile and Birks are not showing much growth. So far, among public jewelry companies, it seems only Pandora is still performing well.

Our industry has its own distinct challenges, of course, but in comments to my last post, Ben Janowski suggested we need to look at the bigger picture:

The gap between the 10 percent and everyone else has become huge and is now out in the open. Signet sits right in the mid-market and is now confronting a public that has pulled back on discretionary spending, a condition that may not turn around soon, but may, in fact, get worse.

It’s what experts are calling the hourglass economy. According to Fortune:

The U.S.—with $63.5 trillion in total private wealth—holds the largest amount of [wealth of] any country in the world. But that wealth is unevenly distributed.…

Allianz calculated each country’s wealth Gini coefficient—a measure of inequality in which 0 is perfect equality and 100 would mean perfect inequality, or one person owning all the wealth. It found that the U.S. had the most wealth inequality, with a score of 80.56, showing the most concentration of overall wealth in the hands of the proportionately fewest people.

The shrinking of the middle has long been said to be hurting retailers such as Macy’s. Until recently, it seemed that Signet was immune.

But there is an irony here, especially if, like me, you listen to a lot of earnings calls, and you continually hear CEOs bemoaning the lack of middle-class spending.

Take Macy’s. In May, chief financial officer Karen Hoguet said executives were “frankly, scratching their heads” why middle-market consumers weren’t shopping at its stores.

Those comments came shortly after Macy’s shut 41 stores. Shortly afterwards, the company announced it was closing another 100, even though many of those stores were profitable. In many cases, they had just been neglected, and it was cheaper to shut them than to upgrade them.

Glassdoor.com estimates that the average Macy’s sales manager makes about $48,000 a year. Pew Research Center says the national middle-class threshold is $42,000. So the people who work at Macy’s are the kind of people who would ordinarily shop at Macy’s. Yet, those closures will likely affect thousands of workers. Amid that backdrop, it’s not surprising that middle-class consumers are anxious and skittish and not hitting the malls to buy jewelry or really much of anything.

Meanwhile, CFO Hoguet made $2.3 million last year. CEO Terry Lundgren made $11 million—and that’s without a bonus. That isn’t limited to Macy’s: According to the Economic Policy Institute, the average worker’s salary has grown 10.3 percent from 1978 to 2015. The average CEO’s compensation has skyrocketed 940 percent.

We have come a long way from Henry Ford famously paying his workers a living wage so they could afford to buy his cars. Today, there is a huge disconnect between those at the top and the people they employ. Then those same executives go on earnings calls and scratch their heads about where all the shoppers went.

JCK News Director