Amazon’s and Walmart’s latest moves confirm the death of the middle class as we know it

Amazon and Walmart are battling for shoppers at the highest and lowest ends of the income spectrum, leaving the middle class in the dust.

Amazon, whose Prime service claims more than 70% of upper-income households in the US — those earning more than $112,000 a year — is suddenly going after customers on government assistance who earn less than $15,444 a year for a one-person household.

The retailer on Tuesday announced it would slash the cost of its monthly Prime membership nearly in half, to $5.99 a month, for customers who have an electronic benefit transfer card, which is used for government assistance like the Supplemental Nutrition Assistance Program, better known as food stamps.

“It’s a shot over the bow at Walmart,” said Doug Stephens, a retail-industry consultant. In other words, the strategy is a direct grab for Walmart’s core customers. Nearly $1 out of every $5 in SNAP benefits was spent at Walmart last year, according to Morningstar.

At the same time, Walmart is going after Amazon’s core customers with its $3 billion acquisition earlier this year of Jet.com, which attracts a younger and higher-income group of shoppers than Walmart. The retailer has also recently been snatching up trendy online retailers like ModCloth, Moosejaw, and Shoebuy, and it’s reportedly considering a bid for the high-end menswear brand Bonobos.

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What’s Behind the Inventory Crisis of 2016?

The last time the inventory-to-sales ratio was this high was 2009, when we were in the throes of the Great Recession – people lost jobs, businesses closed, nobody was spending, nobody was growing.

What does it mean that inventory levels are this high in 2016? Are consumers not spending? Are we headed for another recession? Or are other forces at work?

Well, in April the Bureau of Economic Analysis reported that consumer spending experienced its biggest gain in six years. And while JPMorgan recently reported an increased probability of a recession in the next 12 months, no one’s sounding the alarm bells quite yet. Besides, inventory levels have been high since last fall.

So what else could be at work?

The Marketplace

Traditionally, a drop in consumer demand would cause a short-term build-up of inventory. But businesses would eventually compensate by cutting orders and manufacturers would produce less. But as we’ve seen, demand isn’t going down. And yet, inventory isn’t moving. Why?

One major culprit is the way consumers shop. Their expectations have changed. This is the age of Amazon Prime, Instacart, Uber and Lyft. Free shipping. In-store pick-up. 1-hour delivery. Easy exchanges and returns. Above all – convenience. If it isn’t convenient for a customer to buy something they want, they won’t buy it – or they’ll buy it somewhere else. Fulfillment has usurped the throne of customer satisfaction.

Traditional retailers have struggled because of this. As young, tech-driven start-ups bite into market with the luxury of fresh starts, traditional retailers have tried to stay competitive. One common tactic has been to keep buffer inventory on hand. Out-of-stock inventory kills customer loyalty. Not being able to fulfill quickly kills customer loyalty. But having lots of inventory doesn’t equate to efficient fulfillment. That requires having a modern, flexible supply chain. Without agility, retailers often lack the competence to satisfy customer demand, let alone fulfilling profitably.

Read more at  What’s Behind the Inventory Crisis of 2016?

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