What shopping can explain about the recovery

Stock performance among retailers that target different income classes has diverged a lot since the recession started. Why?

Sellers of luxury have done well; companies that target people with limited budgets have prospered, while retailers that focus on the middle-class have suffered. Dollar-store companies are national chains that have grown rapidly in part by displacing local drugstores in rural areas.

Revenue also shows that companies targeting the extremes of the income distribution have done better than those targeting the middle class. Since the beginning of 2006, the worst performing luxury brand in the sample of large public companies (Nordstrom) saw its sales rise by 47%. The retailer focused on lower-income customers with the relatively weakest revenue growth (Wal-Mart) still brought in 37% more in sales in 2013 than in 2006. By contrast, the best-performing middle-class retailer (Target) only had sales increase by 22% since 2006.

Middle-market retailers are underperforming in part because they're the most vulnerable to the rise of online merchants like Amazon. For perspective, the accompanying chart compares Amazon's sales growth against sales growth of the companies in the three categories (sales to lower income customers is driven almost entirely by Wal-Mart).

Amazon has gone from less than $11 billion in sales in 2006 to about $75 billion this year. Even if you add all of Amazon's revenue to the revenue of middle-market retailers, however, those combined sales have still increased more slowly than revenue at companies focusing on the poor or the rich.

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