Walmart's latest move confirms the death of the American middle class as we know it (WMT, AMZM)

pulse

March 24, 2017 5:43 PM

Walmart is moving away from its core customers as the middle class shrinks across the US.

ModCloth models.

Walmart is getting into aspirational retail — and it says a lot about the American economy.

In recent months, Walmart has purchased several trendy, online retailers, including the hip fashion brand ModCloth, outdoor gear retailer Moosejaw, and shoe store ShoeBuy.

These brands' wares are different from the apparel typically sold by Walmart that's better known for low prices than fashion innovation. ModCloth's dresses can cost between $60 and $150, whereas Walmart's dresses are usually priced between $10 and $25.

"The acquisitions of ShoeBuy and Moosejaw, in addition to Hayneedle, gave us immediate expertise and capabilities in new, more upscale categories of merchandise," Walmart CEO Doug McMillon said during a call with analysts in February.

The addition of more "upscale" merchandise demonstrates the changes that the discount retailer has been forced to make as the number of potential middle-class customers plummets. Between 2000 and 2014, middle-class populations decreased in 203 of the 229 metropolitan areas reviewed in a Pew Research Center study.

In an economically divided America, Walmart has tried to sell not only to shoppers looking for extreme discounts, but also to shoppers with higher incomes seeking higher-quality items.

Walmart has been working to increase its sales to more affluent customers for years, especially in e-commerce.

"The nature of e-commerce, the nature of the Neighborhood Markets and other things we're doing do create an opportunity for us to be even more relevant to customers that are at the higher end of the scale," McMillon said at an investor meeting in October 2015, Fortune reported.

Walmart's e-commerce sales have been spurred on by recent acquisitions, increasing 29% in the most recent quarter compared with the same period last year. However, the retailer has a long way to go until it catches up with rival Amazon — especially as the e-commerce giant expands its apparel offerings.

Amazon is expected to surpass Macy's as the biggest seller of apparel in America this year. Before Walmart's recent acquisitions of trendy e-commerce brands, Amazon had similarly ventured into more high-end fashion, selling products by designers such as Zac Posen and Stuart Weitzman.

Walmart's market value is now $298 billion, compared with Amazon's $356 billion. In February, Warren Buffett's Berkshire Hathaway sold off $900 million of its Walmart stock, the last of Buffett's shares in the company, after saying in 2016 that Amazon's competitors had not figured out a way to counter the e-commerce company.

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