The death of the American middle class has brought department stores down with it

  • Experts say that the recent closing of Bon-Ton and ongoing struggles of department stores are linked to the death of the middle class in the United States.

  • As the middle class has shrunk, high-end and budget stores have become the most successful areas of the retail sector.

  • According to a Deloitte study, revenues have grown 81% and 37% at high-end and budget stores, respectively, in the last five years. Meanwhile, stores in the middle range have seen a 2% increase in sales.

After 160 years in business, Bon-Ton Stores filed for Chapter 11 bankruptcy protection in February. Just two months later, two liquidation firms won its assets at auction, setting off the process of closing all of its stores in the United States.

It was widely considered that the department store was the latest victim of the retail apocalypse, suffering from an industry-wide issue of sales increasingly shifting online while foot traffic to malls has slowed.

However, some experts say that there may be more to the story, and that its decline could also be attributed to larger social changes.

"The middle is disappearing — low and middle-income customers increasingly shop at discounters and dollar stores, forcing retailers that once served these customers, like Bon-Ton and its subsidiary brands, to close shop," analysts from intelligence firm Gartner L2 wrote in a recent report on department stores.

The slow decline of the middle class in America has had an impact on retailers that haven't adapted to the change. Increasingly, the most successful businesses in the sector have become more distinctly split into two sections: luxury and budget stores.

A recent report released by Deloitte titled "The Great Retail Bifurcation: Why the retail 'apocalypse' is really a renaissance" argued that consumers' shifting attitudes towards finances and social issues are at the core of the recent upheaval in retail.

"The vast majority of retail sales — 91% — still take place in brick-and-mortar stores, which means that online shopping represents just 9% of total retail sales. Even though the online channel is projected to grow 11.7%, in-store sales are also projected to grow 1.7% — hardly the stuff of apocalypse," Deloitte analysts wrote.

Instead, retail is changing in line with consumer income divides, meaning that high-end and budget retailers are seeing revenues soar, growing 81% and 37%, respectively, in the last five years, according to Deloitte.

Meanwhile, the middle is being squeezed out and has only seen a 2% increase in sales in the past five years.

For this reason, high-end retailers and discount retailers have become some of the biggest bright spots in the sector, while companies that rely more on middle-class spending, such as department stores Bon-Ton, Macy's, Sears, and JCPenney, have had to close hundreds of stores.

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