Speaking of J.C. Penney, it hasn’t done well at all in recent years (in case that slipped your notice). In fact, many mid-market retailers have trailed behind their up-market peers since the market crashed in 2008.
And I can think of at least two reasons for that.
First, unprecedented levels of stimulus from the Fed have worked to push up the price of risk assets like stocks. This has disproportionately benefited the wealthiest 10% as they’ve always been more invested in the stock market than the average Joe.
As the Fed pumped money in the system, the wealthiest of the wealthy were cushioned from the worst of the fall. And that meant they still had discretionary income to spend at luxury retailers like Tiffany Co.
The second reason links back to demographics. The spending of high-income earners peaks later – about five years later – than the population as a whole. So while most Americans hit their peak spending years in 2007, the top 10% has continued to spend.
These factors combined have led to a divergence in the retail arena, where the high-end luxury retailers have fared much better.
Here’s a look at J.C. Penney’s stock (JCP) juxtaposed with Tiffany Co (TIF).
As you can see, both stocks bottomed out together in early 2009. And both mounted an initial recovery much of that year.
But then the two diverged.
JCP is now worth just 45% what it was at the height of its post-crash rally, in October 2009. Forget about its worth compared to 2007!
Meanwhile, Tiffany Co continued to gain ground. Today, despite having a rougher 2012, TIF is still worth 114% more than it was in October 2009.
Time will tell whether or not this divergence continues. Even the high-income earners in the U.S. are now hitting their peak spending years. We’ll see…
If you haven’t done so already read the Survive & Prosper issue on “According to the Bureau of Labor Statistics (BLS).”