On January 21, 2010 I posted a Media Realism piece entitled “The Gini Coefficient and The Future.” The Gini Coefficient is a means of measuring inequality in income or wealth in a country. I raised a mild alarm that American income distribution was beginning to look like the array one would see in a repressive regime or a developing country. The post generated a great deal of mail. A few people accused me of being a socialist (!) while left wing friends loved it. Well, this past week we received an unofficial update on the current Gini distribution.
The New York Times provided a very nice analysis of Census Bureau data that was released on Tuesday, September 12, 2011. Some 46. 2 million people or 15.1% of Americans were living below the poverty line. This is the highest number in the 52 years that the Census Bureau has been calculating it. Even more tragic is that some 22% of American children are living below the poverty line. Here are few factoids from the Times coverage and the Census Bureau itself:
--The top 1% of Americans control just under 25% of the country’s income. This is the highest figure since 1928.
--The U.S. ranks #3 among all advanced economies in the amount of income inequality.
--The top 5% of Americans by income account for 37% of all consumer purchases.
--Median annual income adjusted for inflation is at 1973 levels.
An economist friend e-mailed me that the census data is unfair, as it does not include noncash assistance such as food stamps or the earned-income tax credit. So, in his opinion, poverty rates are overstated. He may be literally correct but the poverty line for a family of four is $21,340. Does it make sense to quibble over another $8,000 in food stamps being added to income? If a family of four is making less than $30,000 per year, they are struggling in ways that most of us cannot fully imagine.
While millions are struggling, top end retailers who cater to the elite portion of America are doing just fine. Tiffany’s and Nieman Marcus seem to be thriving. Internationally, the company with the unwieldy name of LVMH Moet Hennessy is doing great with their remarkable stable of luxury brands. Known as LVMH, this French purveyor of the world’s best owns Louis Vuitton bags and luggage, Tag Heur watches, Dom Perignon champagne, Emilio Pucci, Donna Karan and Hennessey cognac. The last quarter Hennessey sales jumped 24% in Asia (excluding Japan) as a large moneyed class is emerging on that continent.
At the other end of the scale, the "dollar stores" are gaining in volume and share while even Wal-Mart is seeing sales declines in the U.S.
Meanwhile, this past year nearly 3 million more Americans fell out of the middle class. The day before these data were released one of America’s premier marketers, Procter & Gamble, announced a marked change in their United States promotion efforts. The Wall Street Journal stated, “The world’s largest maker of consumer products is now betting that the squeeze on Middle America will be long lasting.” Today, P&G, as it is known, has at least one product in 98% of U.S. households, which equals the penetration of TV! P&G chief Bob McDonald is now adopting an “hourglass strategy” with products and marketing support clustered at high and low end consumers but not as much in the middle. This fundamental change recognizes that the middle class is struggling and that emphasis needs to be placed on the “dollar store” downscale market that is growing and the upper end of their market that is stronger than ever. Now, please be let me be clear. The upper end of the P&G market is not nearly as wealthy as the LMVH audience. Yet, it is still growing for P&G. The stagnant area for P&G appears to be that broad group in the middle that has always been the company’s bread and butter market in the United States (P&G is doing well overseas, particularly in Asia and Latin America).
It will be interesting to study the P&G media mix for 2012. Will there be a different mix of cable networks in their buys and what programming will they change? Will they cut back on online action for the low-end brands and beef it up for their more upscale products?
My main takeaway from this is simple. P&G is shifting marketing gears because they do not see a middle class rebound in the United States for the foreseeable future. When arguably the world’s most sophisticated marketer feels this way and acts on it, we should all take notice.
If you would like to contact Don Cole directly, you may reach him at doncolemedia @gmail.com