The economic turmoil of the past four or five years has led to a polarization of the consumer population, with a shrinking middle class and more Americans who are either wealthy or poor.

U.S. Retail Trends report, Nielsen Co., Todd Hale, senior vice president of consumer and shopper insights, Macy’s Inc., Nordstrom Inc., J.C. Penney Co., Kohl’s Corp., Costco Wholesale Corp., Sam’s Club, Dollar General, Family Dollar, Lowe’s Cos., Home Depot Inc., Target’s P-Fresh format, Kroger Co., Whole Foods Market Inc.,

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Inside This Issue - News

Market bifurcation

August 20th, 2012

NEW YORK – The economic turmoil of the past four or five years has led to a polarization of the consumer population, with a shrinking middle class and more Americans who are either wealthy or poor.

That has led to a polarization in the retail industry as well, according to a U.S. Retail Trends report from Nielsen Co.

"Higher-end retailing and lower-end retailing seem to be performing best these days," notes Todd Hale, senior vice president of consumer and shopper insights at Nielsen.

Hale points out that retailers that cater to more affluent consumers are posting solid strings of same-store sales gains, because their customers have the willingness and the ability to spend.

As a result, such department store retailers as Macy’s Inc. and Nordstrom Inc. are doing far better than J.C. Penney Co. or Kohl’s Corp. Macy’s has posted 32 consecutive months of same-store sales gains, in fact, and Nordstom’s streak of same-store sales gains has lasted 34 months.

Warehouse club operators, which also tend to appeal to more affluent consumers, are also doing well. Costco Wholesale Corp. has posted 30 straight months of same-store sales gains, and Sam’s Club (which doesn’t report monthly sales figures) has had same-store sales gains in 18 consecutive fiscal quarters.

Retailers catering to lower-income households have done similarly well. That is particularly true of dollar stores.

"Dollar stores have driven very strong same-store sales growth for the last 17 (Dollar General) or 18 (Family Dollar) consecutive quarters, stretching back to the beginning of 2008."

Hale notes that the dollar stores have done a good job of changing their formats and — more importantly — changing their assortment to appeal to shoppers looking for value and, as a result, they’ve strengthened their appeal to low-income shoppers. At the same time they’ve broadened their appeal and are drawing more affluent and middle-income shoppers into their stores as well.

The home improvement retailers Lowe’s Cos. and Home Depot Inc. have put together three and four consecutive quarters, respectively, of same-store sales growth. Hales says that’s indicative of the fact people have finally reached the point where they’re ready to start fixing things in their homes that they may have been neglecting in recent years.

"In the traditional food, drug and mass world, CVS is outperforming its other two counterparts," Hale says. "Target is outperforming Walmart and Kmart, helped by its greater focus on food. Target’s P-Fresh format has allowed them to drive sales growth in the last 15 months. Walmart has driven growth in the last three quarters, after nine quarters of decline. So they’re coming out of it, but Target’s been ahead of them because of how they’ve changed their assortment, particularly related to food.

"Among the national grocery chains, it’s Kroger Co. that’s been the growth driver, with 17 consecutive quarters of same-store sales growth, going back to 2008, driven by a lot of innovation. They haven’t really expanded their store count in the last five years (neither have Safeway or Supervalu), but they have made the stores they have work even better for them.

"They’ve done that through tear downs, through remodels, and through a greater focus on their shoppers through their loyalty card data, and mining that data and delivering promotions and messaging to their shoppers that matters to them. And I think they’ve also done a good job of leveraging their gas reward program to attract shoppers and very good at rewarding shoppers based on how much they spend in their stores. also rewarding shoppers, the more you buy of certain gift cards."

Whole Foods Market Inc. is another retailer on a winning streak, with 11 consecutive quarters of same-store sales growth. Hale notes that the only same-store sales declines the company ever had came back in 2009, when much of the retail industry was struggling. when retailing was really in a tough position. For Whole Foods, as with a number of chains with more affluent customer bases, success has been a result of really connecting to those core customers.

Summing up the polarization trend and its effect on mass retailing, Hale says: "The high end’s really working, the low end’s working, and in the middle there are retailers that are outperforming their peers."

Nielsen’s U.S. Retail Trends report, an evolution of the channel blurring study it has been producing since the mid-1990s, shows that channel blurring is continuing. The dollar store chains and Target are examples of the way more and more nonfood retailers are emphasizing and expanding their food assortments to drive traffic and sales.