* You can look at charts and treatises all day long and still not quite get your head around the problem of America’s stark inequities. This incredibly important Wall Street Journal article, however, brought it all home for me…
For generations, Procter & Gamble Co.’s growth strategy was focused on developing household staples for the vast American middle class.
Now, P&G executives say many of its former middle-market shoppers are trading down to lower-priced goods—widening the pools of have and have-not consumers at the expense of the middle.
That’s forced P&G, which estimates it has at least one product in 98% of American households, to fundamentally change the way it develops and sells its goods. For the first time in 38 years, for example, the company launched a new dish soap in the U.S. at a bargain price. […]
Economist Edward Wolff of New York University estimates that the net worth—household assets minus debts—of the middle fifth of American households grew by 2.4% a year between 2001 and 2007 and plunged by 26.2% in the following two years.
P&G isn’t the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.
Food giant H.J. Heinz Co., for example, is developing more products at lower price ranges. Luxury retailer SaksInc. is bolstering its high-end apparel and accessories because its wealthiest customers—not those drawn to entry-level items—are driving the chain’s growth.
Citigroup calls the phenomenon the “Consumer Hourglass Theory” and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom. The index posted a 56.5% return for investors from its inception on Dec. 10, 2009, through Sept. 1, 2011. Over the same period, the Dow Jones Industrial Average returned 11%.
“Companies have thought that if you’re in the middle, you’re safe,” says Citigroup analyst Deborah Weinswig. “But that’s not where the consumer is any more—the consumer hourglass is more pronounced now than ever.” […]
To monitor the evolving American consumer market, P&G executives study the Gini index, a widely accepted measure of income inequality that ranges from zero, when everyone earns the same amount, to one, when all income goes to only one person. In 2009, the most recent calculation available, the Gini coefficient totaled 0.468, a 20% rise in income disparity over the past 40 years, according to the U.S. Census Bureau.
“We now have a Gini index similar to the Philippines and Mexico—you’d never have imagined that,” says Phyllis Jackson, P&G’s vice president of consumer market knowledge for North America. “I don’t think we’ve typically thought about America as a country with big income gaps to this extent.”
Procter & Gamble is one of the smartest marketers in the world. If this is how P&G now sees our country, you can bet it’s accurate. We really are in serious trouble here.
Go read the whole thing.
* And here’s another important story that you shouldn’t pass by…
Caterpillar Inc. is struggling to add skilled workers in its manufacturing operations despite high U.S. unemployment levels that have forced President Barack Obama to take extraordinary measures, the company’s chief executive said on Friday.
The dichotomy in the makeup of the workforce is threatening U.S. and Canadian competitiveness, Caterpillar CEO Doug Oberhelman said.
“We cannot find qualified hourly production people, and for that matter many technical, engineering service technicians, and even welders, and it is hurting our manufacturing base in the United States,” he told a business audience at the Spruce Meadows equestrian facility outside Calgary.
“The education system in the United States basically has failed them and we have to retrain every person we hire.”
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