The world has changed. The Wal-Mart Era of cheap brand-goods may be over. The company that reshaped America by cutting price and driving Mom, Pop and Main Street out of business now faces a tidal wave of affluence. The quest for luxury and niche brands and the millions of products available on the Internet have the discount retailer scrambling to adapt.
The time when Wal-Mart could dictate to suppliers is passed. Same-store sales are falling. Manufacturers are abandoning Wal-Mart for higher quality venues. Customers are too. A new era of personal preference and MySpace individuality has merged with a flood of product specialization to squeeze Wal-Mart even lower into the bottom strata of retailing.
While Wal-Mart valiantly fights back, in part by replacing McDonalds burgers and fries with more "upscale" Subway restaurants in its stores, the rich struggle just to be rich. The gap between the rich and poor is at a historic extreme, but the gap between the rich and super-rich is even wider. Check out the parody video at the theonion.com, "In The Know: Are America's Rich Falling Behind The Super-Rich?"
The rich are a dime a dozen today. Multimillionaires feel inadequate, and even billionaires can't get on the Forbes 400 list of richest people.
Inflation is hitting the rich harder than others. The Forbes' "Cost of Living Extremely Well Index" (CLEWI) is comprised of a basket of luxury goods that has climbed at double the rate of inflation in the past year. Catering costs are up 31% and facelifts are up 17%. A decent 70-foot yacht, the Swan Nautor, is up 17% to over $4.7 million.
But don't feel too sorry for them yet. At upscale boat shows, helicopters are the new yacht dinghies for the super-rich.
According to the 2007 World Wealth Report, the global number of the super-rich ($30 million plus) grew 11.3% between 2005 and 2006. But their total wealth grew 16.8% to $13.1 trillion. What did all these people produce to get all this money? Well, unlike the Robber Barons of the 19th century, production is no longer necessary to build wealth. The super-rich feasted on the financial markets: hedge funds, IPO's, mergers, emerging markets and yes, debt. Credit expansion floats all yachts, for a while.
Inflation produced the bulk of these bubble returns to capital owners. But inflation also eats away at the value of currency. And both inflation and deflation eventually have the same result -- destruction of wealth.
Inflation adulation is still in vogue. For years I have heard people celebrate rising property values -- comparing what it cost then to what it's worth now. I haven't heard many conversations about the flip side of that comparison since the real estate bubble broke -- what they paid and how much they've lost. Perhaps it's not a suitable topic for cocktail chatter, yet.
The question I keep asking myself is: Does this social mood and financial excess look more like a top or a bottom? Today, getting wealth is not the battle it once was. We may soon realize that keeping it is.