The Consumer Hourglass

NYTimes notes: P&G isn’t the only company adjusting its business. A wide swath of American companies is convinced that the consumer market is bifurcating into high and low ends and eroding in the middle. They have begun to alter the way they research, develop and market their products.

Food giant H.J. Heinz Co., for example, is developing more products at lower price ranges. Luxury retailer Saks Inc. is bolstering its high-end apparel and accessories because its wealthiest customers—not those drawn to entry-level items—are driving the chain’s growth.

Citigroup calls the phenomenon the “Consumer Hourglass Theory” and since 2009 has urged investors to focus on companies best positioned to cater to the highest-income and lowest-income consumers. It created an index of 25 companies, including Estée Lauder Cos. and Saks at the top of the hourglass and Family Dollar Stores Inc. and Kellogg Co. at the bottom. The index posted a 56.5% return for investors from its inception on Dec. 10, 2009, through Sept. 1, 2011. Over the same period, the Dow Jones Industrial Average returned 11%.

“Companies have thought that if you’re in the middle, you’re safe,” says Citigroup analyst Deborah Weinswig. “But that’s not where the consumer is any more—the consumer hourglass is more pronounced now than ever.”

…Firms catering to low-income consumers, such as Dollar General Corp., also are posting gains, boosted by formerly middle-class families facing shrunken budgets. Dollar stores garnered steady sales increases in recent years, easily outpacing mainstream counterparts like Target Corp. and Wal-Mart Stores Inc., which typically are more expensive.

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