The disappearing mid market

Add comment June 12th, 2006 David Bush - Iasta

The Economist recently ran an interesting article of the same name in their consumer business section.

The central theme of the article is the two most noteworthy, and seemingly at odds, trends among the swelling ranks of North American middle-class consumers: the tendencies for consumers to be more cost conscious, but simultaneously more willing to splurge money on luxury items.

Until the 1990s, broadly speaking, shopping choices tended to reflect spending power. The rich bought expensive things, the poor tended to buy cheap, low quality things, and the middle classes stuck to the mid-market.

But today, middle class shoppers around the world are not content to be marooned in mediocrity. Instead, these consumers are trading up, by occasionally buying luxuries they would have once regarded as unaffordable, and trading down, by hunting for basic goods at bargain prices, at the same time (to generate the savings required to be lavished on the occasional luxury).

Sales at the top and bottom of the consumer market are growing rapidly while sales in the middle are being squeezed - hard. In the last 3 years, trading up sales increased by over 67% to $500 billion (from $300 billion in 2002) while trading down sales increased by over 40% to $1 trillion (from $700 billion in 2002). Furthermore, this trend is also strong in Europe, and in Japan (where it’s been going strong for a long time).

So what does this mean for you and your sourcing group? If you offer a broad spectrum of products from the low end to the high end of the market, put extra focus on those projects on the low end and the higher end, as this is where your sales are likely to be strongest and, thus, your supplier demands likely to be highest, relatively speaking.

After all, as the article points out, companies that have traditionally made their money supplying primarily mid-market products are falling on harsh times. Consider General Motors - they’ve been hit hard by the 12% reduction in the middle market over the past 10 years (when the trading up segment of the market grew by 8% and the trading down segment by 4%).

Entry Filed under: General, Global Supply Issues/Risk, Suppliers