The Big Middle is Shrinking

This month, Ryerson’s retail real estate think tank―the Centre for the Study of Commercial Activity (CSCA)―released a paper that analyzes what is happening to the area of retail expenditure they term the “big middle.” What they found with retail expenditure is that there has been a slight shift in overall expenditures for the 20% of Canadians who spend the highest amounts. They also noted that the retailers that provide middle-priced products seem to be losing ground. Probably one of the most obvious is Sears.

While the CSCA analysis is interesting, the real point is not so much that overall retail expenditures are migrating, which they are very slowly, but that the big middle expenditures are not all going to mid-priced retailers. We at J.C. Williams Group have been talking about this for a number of years. We termed it “trading up, trading down.” The fact that the same consumers are shopping at Dollarama and getting their coffee at Starbucks is a pretty good illustration of this trend.

We’ve seen this phenomenon evolving for several years but now we are seeing the impact on our retail base. Retailers that have developed a low-price/high-value offering thrived. Think Forever 21, Joe Fresh, Dollarama versus Cleo, Jacob, and Sears. While there has been much analysis of newcomers to the Canadian market and their impact on our home grown retailers, the fact is that retailers that provide extra value are expanding and growing no matter where their home base is.

The same applies at the high end. Think Starbucks, Whole Foods, Nordstrom, and even Hudson’s Bay. These are retailers that provide a brand with extra value beyond the luxury products they provide.

The challenge with staying out of the sinking middle is that it is not enough for retailers to shift to higher priced or lower priced merchandise. It requires a total rethink of everything that the retailer does. Hudson’s Bay has been an interesting case study. Because of their real estate and the potential assets in their name and history, the owners decided to trade up rather than trade down. Since then, they have invested heavily in updating their stores and improving customer service as well as securing the premium brands that gives them credibility. Their balancing act is to maintain value while improving their brand image. They are now one of the very few department stores worldwide that is showing growth. They are out of the middle.

Written by: Maureen Atkinson, Senior Partner, Research Insights at J.C. Williams Group


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