Customer income may be culprit for weak sales
The gap between rich and poor continues to widen, and the economic outlook varies greatly depending on income level. The latest evidence comes from Goldman Sachs analyst Michael Kelter, who wrote about the firm’s consumer optimism survey.
Optimism was far more prevalent among consumers with higher incomes than with lower incomes, he said. Those with incomes of $90,000 or more were optimistic, and those with incomes of $50,000 or less were not. While that makes sense, Kelter noted the gap between the two was the highest in the survey’s history.
Wealthier consumers should be feeling wealthier right now. Housing prices have risen this year. They tend to have more job prospects. And the stock market has skyrocketed.
What did poorer consumers get? In January, the payroll tax went up by 2 percent to return to its normal levels. According to Goldman, 42 percent of consumers felt the loss of that income and then changed their spending accordingly. That payroll tax had a $125 billion impact on the economy.
The result for franchises is simple: If your customer base is generally lower income, then you’re more likely to see a sales decline. Companies with wealthier customers are doing better.
It means a fast-casual concept that caters to higher-income diners like Panera Bread will do better than a casual-dining chain whose customers are primarily middle class or lower, such as Ruby Tuesday.