Inflation's hit to consumer spending power means retailers may refocus on the low end
CBC
When the Hudson's Bay Co. announced last week that it was jolting Zellers back from the dead, many former shoppers were moved to share fond memories of the discount chain.
From old-fashioned Coke bottles to retro kitchen products, retailers know that nostalgia can sell. To the extent that some Canadians find themselves yearning for what they recall as those happy, joyous days when Zellers was part of their lives, the venerable Hudson's Bay Co. will be pleased to gratify them.
But according to Waterloo, Ont.-based economist Jean-Paul Lam, there may be something other than nostalgia at play — and it doesn't sound quite so warm and fuzzy.
The Bay's move to relaunch its lower-end brand represents a trend that Lam expects to see replicated, as inflation makes people feel poorer: Catering to the consumer demand for what economists call "inferior goods."
"I think this is what a lot of retailers are probably thinking about," Lam said on Friday, just after Statistics Canada released its latest data on retail sales.
As Lam explained, in its origin, the economic concept of inferior goods does not necessarily refer to products that are shoddily made or unattractive, although it may include products like that.
Instead, economists say the principle springs from the idea that with most goods — from food to fashion — people spend more on them as they get richer. But inferior goods are an exception; as people get richer, they buy less of them.
Lam offers the example of filet mignon and ground beef, or car brands BMW and Kia.
"Individuals rank goods in terms of our desire," said Lam, helping to explain the principle, which is often discussed as part of behavioural economics.
"We tend to rank certain goods above other goods in our preference, and these preferences might be subjective."
Lam, for example, said he doesn't like filet mignon, preferring the taste and texture of cheaper cuts of beef. And Kia may actually make a better car.
In fact, the difference between some goods may have nothing to do with quality, but rather have a lot to do with prestige and status. Inferior goods are cheaper, which may, perversely, reduce their appeal to rich people.
Lam notes that around 2014, an economic recovery was kicking in — house prices were up and stocks had begun to rise. People were feeling rich. And it was then that the Bay incorporated Saks Fifth Avenue, a prestige brand, into its stores to take advantage of consumers' urge to shop for high-end goods. The premium retailer Nordstrom also came to Canada, while middle-class retailer Sears had crumbled.
But once incomes and wealth begin to fall, Lam said, everything can change. The demand profile suddenly switches and people who are falling behind seek out inferior goods instead.
