It can be hard out there for the middle guy.
Or at least that's what news from the retail industry would have one believe. Gap recently announced that it will be closing 175 North American stores in an attempt to spur sagging sales. Abercrombie and Fitch's 2014 sales were also down, and several other middle-market retailers like J.Crew have been struggling. This economy seems to have been better to lower-end and higher-end retailers, as many of their mid-priced peers stagger.
The seeming polarization between price points goes beyond fashion and big brands. Small-business owners may also feel the pinch that comes with being in the middle. It's the "trouble with a pyramid economy," says Dileep Rao, a clinical professor of entrepreneurship at Florida International University. "There are very few at the top and a shrinking number in the middle. Those who are in the middle will be squeezed."
Some companies may be going to the extreme end, and pricing their wares for the 1 percent. But that isn't always the best response, Rao says. "That is a shrinking market, and, although the margins are great, the question is the size of that market. These companies that were catering to the huge middle will have to go to the larger bottom. This is not just a question of pricing; it's a question of redesigning their business model and aligning it with the new pricing and financing model."
In the Middle
In spite of the slide toward polarized pricing, don't count out the middle-priced businesses yet, especially if they're creating quality products, says Brent Ridge, co-founder of Beekman 1802 Mercantile, an artisanal lifestyle brand he started with his partner and The Amazing Race co-winner Josh Kilmer-Purcell.
"We always try to educate our consumer that if you are getting a cheap price for a product, it's because someone else has already paid the price; i.e., there was cheap labor, hard-knuckling the smaller guy on procurement, etc.," Ridge says. "We are finding that the consumer, more than ever, is in tune with these struggles. People are gravitating away from the idea of a throw-away society where we buy something for cheap fully expecting to throw it away and buy something else when it falls apart. There is a definite and growing portion of the population that is interested in better-produced things and is willing to pay for them."
It may mean lower "personal margins" for the business, but could lead to a stronger bottom line overall.
There's also opportunity for growth beyond the confines of the middle, says Jason Parks, owner of The Media Captain, a digital marketing company based in Columbus, Ohio. "Small retailers with a storefront should focus on promoting their products via social and setting up an e-commerce store," Parks advises. "The retailer can drastically improve their profit margins if they are receiving orders from all over the country. If the mid-price retailer is currently struggling, an e-commerce strategy could result in saving money while still generating online orders for their products."
"There are a lot of people [who] still want quality products without having to spend their entire paycheck," Park continues. "This is the exact reason why there is still space for mid-priced retailers."
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