Middle class retailers dying a slow death: Don Pittis

I've visited two dying Sears stores this month. They were both very depressing. Racks of jackets on hangers that told the wrong size. Empty cardboard boxes in big empty spaces.

Despite another commitment last week by Sears Canada president Doug Campbell that the chain would continue to target the middle class, thetrouble at Searsis a sign that middle class retailing itself is in decline.

Aldwin Era is convinced that retailing is dividing in two, one for the rich and one for the poor. He has a simple theory about why: People no longer want to be seen as middle-class shoppers.

He is now a schoolteacher, but he has a special vantage point on what's happening, having seen retail up close from both ends of the spectrum.

"My family comes from very modest means," says Era. "I was the kid that bought things at [defunct discount store] Bi-Way and Wal-Mart. My mom is the very frugal typical Filipino mother who likes to save her pennies, because she knows what it's like to be in an immigrant household."

His low-end view of the market changed when, as a university student, Era got a job as a clerk at Canadian high-end retailerHolt Renfrew. What he saw came as a shock.

"Ourclientelethat were coming in were people who could spend thousandsof dollars, kind of on a dime, on fur coats and really fabulous jewellery and the latest designer bags. And they would do anything to get those things," says Era.

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And in a phenomenon that sociologists and economists have been observing for years, he says watching rich people spend was contagious. Even though he no longer works in retail, Era says the people of his generation ages 25 to 35 are desperate for status and living on debt, and do not want to identify as "Sears people."

"It's either you want to live above and beyond your means, or you really absolutely cannot and so you really have to shop at stores likeWal-Mart," says Era.

And retailers are noticing.

The place that Era and I met to chat was Toronto's flagship Hudson's Bay, whichwill make room for a branch of the U.S. deluxe store Saks of Fifth Avenue. At the other end of the downtown Eaton Centre mall, the U.S. upscale shop Nordstrom will soon take the place of the dying flagship Sears. It's a location Sears had taken from Canada's ultimate middle-class retailer, Eaton's, now long gone.

While the aspirational poor living on credit identified by Aldwin Era may be contributing to the trend, there is a second group driving the move to luxury retailing. The people who actually are rich.

Low taxes, soaring asset prices and households with two professional incomes make it worthwhile for business to target the growing group of people who have real money to spend.

One of my favourite headlines from the Wall Street Journal last year was"Wealthier Households Carry the Spending Load,"which seemed to imply that as well as having to do all the hard work of earning, those long-suffering rich were forced to do all the spending as well!In fact, the article pointed out that as the rich got richer and the poor poorer, it was only the wealthy who could afford to spend.

"People in the top half of the income distribution are doing just fine. They're spending enough to keep the economy moving," Mark Zandi, chief economist at Moody's Analytics, told the Journal reporters. "But the lower half is having a difficult time keeping their heads above water."

It is the lower half that Era identified as the ones who"really have to shop at stores like Wal-Mart." And that is the second sector that has been growing.

Although sales were hit by bad weather over the holidays, Montreal-basedDollaramahas been opening new branches and going from strength to strength.Earlier thismonth,Wal-Mart announced it was spending half a billion dollarsto expand in Canada, opening new stores and creating jobs.

We are very much at a crossroads in our society in terms of whether we are going to continue down this path toward expanding precarious work - where more and more people are in these very retail stores of which we're speaking, earning very very low wages, often poverty wages.- Prof. Kendra Coulter

The question is, what kind of jobs?

Statistics Canada data shows that retail remains the country's biggest employer,dwarfing manufacturing, health care and construction. While unemployment remains low at 7 per cent, about 12 per cent of existing jobs are in retail, so the quality of those jobs really makes a difference.

"I've heard from a number of luxury retail workers who've said just because consumers are paying more for a product doesn't mean the workers selling them those products are actually experiencing a better-quality job," says Prof. Kendra Coulter, author of the book Revolutionizing Retail,published this month by Palgrave Macmillan.

She says the "Wal-Martization" of low-end retail jobs, with low pay and irregular hours, is helping to promote a two-speed Canadian economy.

"We are very much at a crossroads in our society in terms of whether we are going to continue down this path toward expanding precarious work - where more and more people are in these very retail stores of which we're speaking, earning very, very low wages, often poverty wages," says Coulter.

The danger, she says, is that retail workers are increasingly joining the ranks of a distinct class of working poor too impoverished to shop anywhere but the lowest-end stores.

"So this polarization which we've been seeing may continue, and in many ways I think it is both reflecting and affecting the state of the Canadian economy more broadly," says Coulter.

0:01Retail becomes polarized

Don Pittis on the disappearance of middle-class retail as luxury brands and discount stores multiply.

However, she says there is hope. A growing body of research, including some from U.S. business schools, shows that paying retail workers better is good for business. It's a lesson already learned by Costco, and she hopes the message will get through to other retailers.

Aldwin Era, meanwhile, thought he was going to stay in retail, but has moved on. After graduating, he got a job in one of the last middle-class professions, teaching French at an elementary school.

When I met him on his way home from work, he was wearing orange running shoes. He had just been supervisingCarnaval for grades one to eight and his wardrobe did not look like it had come from Holt's. He says he's happy to be out of the high-end retail world.

"Working in that kind of environment, you feel like you need to buy the things that are around you. You really get sucked up in all that fantasy of the jet-set lifestyle," says Era. "But in reality, when you don't work there any more, you realize you don't need those things."

As Canadian economist John Kenneth Galbraith said in his book The Affluent Society, people with middle class jobs in rich societies can always opt out of the race to keep up with the Joneses.But the slow and painful death of the middle class retailer may be a symptom of something new: Thata growing group of Canadians no longer has that option.