The message from economic experts and business owners is clear: change business practices or be affected by the loss of middle-class incomes.
Skyrocketing health care costs and disappearing jobs are contributing to the shrinking of America’s middle class, which can negatively affect businesses that depend on that market segment.
From 1980 to 2003, the percentage of households with middle-class incomes declined by 7 percent. During the same time, poverty rates inched upward, with more than 1.1 million additional people living below the poverty level in 2004, according to the U.S. Census Bureau.
“Innovate. That’s the way to survive. The message to business is simple: You need to create new intellectual property,” said Dave Anderson of the Colorado Springs Manufacturing Task Force. “Look for opportunities to apply the new global logistics – whether you’re using Fed Ex or the Internet. It makes more of the world economy available to you. If you fail professionally to innovate, you’ll sink in the tar pit like the dinosaurs.”
Median incomes have been stagnant in the United States for the past two years, according to census figures. The middle income nationwide is slightly more than $44,000.
“The middle class is shrinking,” Anderson said. “All you need is to look at the Delphi bankruptcy, where they want to cut wages from $65 an hour to $12 or at General Motors, where they are negotiating with UAW to reduce their pension costs.”
But for many, the changing demographics make it a perfect time to seize the opportunity – the opportunity to build loyalty with their customers, said Lex Higgins, marketing professor at the University of Colorado at Colorado Springs.
“The message is clear: Now is the time to protect the customer base,” he said. “It’s time to give your customers personal attention or they will take their business somewhere else. Take time to get to know your customers.”
Mike Callicrate, owner of Ranch Foods Direct, believes that the answer to wealth inequality is simple: Shop locally, buy locally and deal with local businesses in every way.
“Main Street is contrary to Wall Street,” he said. “When General Motors announced they were laying off 30,000 workers, their stock went up. But what about the Main Streets where those workers live? How are they going to survive? We have got to stop investing contrary to our own interests.”
Census analysts say the long-term trend indicates that income inequality in the United States will continue, squeezing retailers and businesses that focus on middle-income earners.
“Wal-Mart is doing fine,” Higgins said. “And it will increase its market share by focusing on the lower-income people – low prices is their mantra, low prices and low quality. But retailers like J.C. Penny and Sears are struggling.”
Ranch Foods Direct shuns doing business with multinational agriculture conglomerates like Tyson Foods. The company chooses to work with small ranches scattered throughout the country. The benefits, Callicrate said, are clear.
“When you buy from a local store, the money stays in the local economy,” he said. “I believe in turning over that dollar as many times as you can – in the local economy. If you buy from Wal-Mart, that money gets sent to Bentonville (the Arkansas headquarters for the retail giant) every day at 2 p.m. And the money that stays behind is just from their very low wage jobs.”
Small, locally owned businesses will feel the competition for consumers’ dollars as jobs in certain sectors become scarce. Workers could see decreases in take-home income as employers decrease their share of health care costs and other benefits.
But while middle-class workers are struggling to make ends meet in a world with fewer blue-collar jobs, the upper end of the spectrum is flourishing. According to the U.S. Census, the share of income controlled by the top 5 percent of households increased more than 150 percent from 1980 to 2003.
“We’re quickly losing the power to keep the standard of living that the nation’s maintained for the last generation,” Anderson said. “And what do you have when you have a nation of the very poor and the very rich? You have a Third World country, a feudal society. It’s called going back hundreds of years. We can’t deny it – it’s happening. Now what are we going to do about it?”
Businesses that fail to recognize the changes going on in the global economy will fail, Anderson said.
“You have to create a new market concept, some sort of process and knowledge that will create a new economic opportunity that will have some premium over the low cost of labor in India and China,” he said. “They have an infinite supply of people who are willing to work for very little.”
Higgins said that even people with four-year college degrees will suffer.
“It used to be that if you had a B.S. in engineering, you were set,” he said. “You were pretty solid middle class. But those jobs are being shipped offshore as well. We’re obviously becoming a less wealth producing country. It’s estimated that by 2010, that honor will go to the Chinese. The U.S. traditionally has held that place.”
Local businesses can keep their market share, despite the economic worries on the horizon, by marketing and building customer loyalty, Higgins said.
“Building customer loyalty is the greatest opportunity for businesses,” Higgins said.
“If they take care of their customers, then the customers will come back – they’ll pay a little more for the service. It’s a way of turning a threat into an opportunity.”
Callicrate said his business focuses on bringing the best to his customers by knowing his suppliers personally and dealing with ranches that raise cattle only in the United States.
“The decline of the middle class is so insidious because it happens so slowly, wages decline so slowly we don’t realize it,” he said. “What we believe is that the country is better off if you buy something in a way to support local businesses. So we increase wages at the farm and ranch gate and give our consumers a good deal on the best, healthiest food they can buy.”
While the rest of the nation struggles to maintain salaries, Colorado Springs also has seen its share of troubles that have limited middle-class incomes, Higgins said.
“Ten years ago, this was a different city,” he said. “We had a very promising high tech sector that gave a lot of discretionary income. The bubble burst in 2000, and most of those companies are bankrupt. Now, most of the income generated in this city comes from two places: the government and nonprofits. Private enterprise here is very limited.”
The city has a promising future, he said, but only if college graduates stay here to build new companies.
“Companies are less able to support workers, to give them the benefits they need,” he said. “It’s clear that we need more business here, and those businesses need to jealously protect their customer base.”
The options are clear, Callicrate said. Buy locally to support middle class business owners – or buy big box.
“I don’t think there is a greater threat to this nation than the concentration and consolidation of power and wealth in the hands of a few,” he said. “That is the greatest threat to our economic and social well being; it’s a huge threat to our freedom and democracy. Until we change the mindset that allows that kind of monopoly, there can’t be a change in the direction of the middle class.”