A tale of two Ralphs illustrates a K-shaped economy

John and Teresa Anderson were wandering through the huge Ralph Lauren clothing store down the street. Rodeo Driveshopping for holiday gifts.

They showed up with square blue bags. John bought quarter-zip sweaters for himself and his father-in-law, and his wife splurged on a tweed jacket for Christmas.

“I'm going for quality over quantity this year,” said John, a clothing company executive and Palos Verdes Estates resident.

They strolled through the world-famous shopping mecca of Beverly Hills, where there were no signs of major sales.

A mile away, shoppers at Ralphs grocery store in West Hollywood were bargain hunting. The chain's website advertises discounts on a wide range of items, including wine and packaging paper.

Massi Gharibian was looking for cream cheese and ways to save money.

“I’m buying less this year,” she said. “Everything is expensive.”

A Tale of Two Ralphs shows that Americans are facing very different realities this holiday season. It represents the country's K-shaped economy – a growing gap between those who are rich and those who are trying to stretch their budgets.

Some Los Angeles residents are tightening their belts and prioritizing essentials like groceries. Others often visit expensive stores such as Ralph Laurenwhere ushers hand out hot chocolate and a cashmere silk tie sells for $250.

In a K-shaped economy, high-income households are at the top of the “K,” benefiting from rising wages as well as the value of their stocks and property. At the same time, low-income households are on a downward path, squeezed by inflation and weak income growth.

The model reflects the country's contradictions. Economic growth looks healthy on paper, but hiring has slowed and unemployment is rising. Investment in artificial intelligence data centers is soaring while factories cut jobs and home sales stall.

The gap is most noticeable in affordability. Inflation remains a much heavier burden on households at the lower end of the income distribution, and this frustration has spilled over into policy. Voters are unhappy with expensive rent, food and imported goods.

“Low-income people are becoming more and more conservative in their spending patterns, and high-income people are actually driving spending and spending more,” said Kevin Clouden, executive director of the Milken Institute, an economic think tank.

“Inflationary pressures on low- and middle-income people have been much higher, and they continue to rise,” he said.

According to Bank of America report According to data released this month, after-tax salaries for employees with higher incomes rose 4% from a year ago, while lower income groups saw a jump of just 1.4%. Higher-income households also increased their spending year-on-year by 2.6%, while lower-income groups increased spending by 0.6%.

The executives behind the two Ralphs say they're seeing the trend across the country.

Ralph Lauren reported better than expected quarterly sales last month and raised its forecasts, while Kroger, the grocery giant that owns Ralphs and Food 4 Less, has sometimes said as much. struggling to attract clients experiencing cash shortages.

“We're seeing a split across revenue groups,” Kroger interim CEO Ron Sargent said during the company's conference call earlier this month. “Middle-income customers are feeling increased pressure. They are taking smaller, more frequent trips to manage their budgets and are cutting back on discretionary purchases.”

Kroger lowered the top end of its full-year sales forecast after mixed earnings third quarter profit this month.

During a Ralph Lauren conference call last month, CEO Patrice Louvet said his brand had benefited from targeting wealthy customers and avoiding discounting.

“Demand remains healthy and our core customer is resilient,” Louvet said, “especially as we continue…to shift our hiring toward more full-stack, less price-sensitive and larger new customers.”

Investors also noticed the split.

The stock prices of the companies behind the two Ralphs also resemble the letter K. Ralph Lauren shares have jumped 37% over the past six months, while Kroger shares have fallen 13%.

To appeal to increasingly discerning consumers, Kroger offered a pre-packed holiday meal for eight people consisting of turkey or ham, stuffing, green bean casserole, sweet potatoes, mashed potatoes, cranberries and gravy for about $11 per person.

“Stretch your holiday dollars!” says the company's weekly advertisement.

At the Ralph Lauren store on Rodeo Drive, sunglasses and polo shirts were on sale without discounts. Twinkling lights decorated the trees at the store's entrance, and employees offered customers free cookies for the holidays.

Ralph Lauren and other luxury stores are taking the opposite approach to retailers selling basic goods to the middle class.

They increase profits from selling products at full price. Stores that cater to affluent shoppers don't run promotions as often, according to the Milken Institute's Clouden.

“When luxury stores have sales, it's usually a larger structural sign of how they're doing,” he said. “They don’t need sales right now.”

Jerry Nickelsburg, faculty director of UCLA Anderson Forecast, said people with high incomes are less affected by inflation, which has driven up the prices of everyday goods, and are less likely to hunt for bargains.

“The bottom of the income distribution is being squeezed by inflation and consuming less,” he said. “The top end of the income distribution has growing wealth and rising incomes, so they are less affected, if at all.”

The Andersons on Rodeo Drive also picked up gifts from Gucci and Dior.

“We're spending about the same as last year,” John Anderson said.

At Ralphs, Beverly Grove resident Mel, who did not want to give her last name, said the grocery store needs to go further for its consumers.

“I’m 100 percent trying to spend less this year,” she said.