February 9, 2026
pavelkubarkov/Depositphotos.com
How Relevant Is The K-Shaped Economy To Retail Performance?
With the “K-shaped economy” becoming a buzzword in recent years, Mark Mathews, the National Retail Federation’s chief economist, recently explored what it means for the retail business.
He wrote in a blog entry, “A K-shaped economy describes a scenario where different income groups grow at drastically different rates, with their relative performance diverging like the arms of the letter ‘K.’”
Examining credit and debit card data with the help of Pyxis by Bain & Company and Affinity Solutions, NRF identified a major difference in spending growth in discretionary goods when broken out by consumer spending levels.
One broader finding was that although seven of the 10 income groups declined, overall discretionary spending in 2025 still managed growth, up 1.2%, as the top 20% of spenders in the discretionary category is estimated to account for over 60% of total spending. Mathews wrote, “Essentially, strong spending in higher income segments is masking weakness among lower income segments.”
Exploring some retail channels, NRF’s analysis found spending on department stores was up 1.4% — although only one income bracket, the top 10%, increased their spending at the channel. With their appeal to price-conscious consumers, wholesale clubs were able to grow sales across all income segments, expanding 13.6% in total.
Mathews concluded: “What is clear is that across lower- to middle-income households, growth in spending has begun to slow. However, top-line spending remains robust, and some sectors have even managed to retain or grow their share across income groups. “
Walmart, Costco, Off-Pricers Reap Rewards as Value Is Top of Mind
Third quarter earnings reports have chronicled how retailers including Walmart, Costco, and TJX are benefiting as shoppers seek value and trade down. Meanwhile, double-digit gains by Coach parent Tapestry Inc. and Ralph Lauren have demonstrated the stronger spending power of higher-income customers.
Moody’s chief economist Mark Zandi told USA Today that surging stock prices, record-high home values, and years of pandemic-era savings have boosted the purchasing power of upper-income households. On the other hand, consumer confidence among middle earners has fallen to its lowest point since mid-2022, reflecting growing anxiety among families facing higher costs and limited financial breathing room.
He wrote on LinkedIn, “An increasingly K-shaped economy can’t be good. It means the economy is highly dependent on a small group of the well-to-do, who, in turn, spend based in significant part on how their stock portfolios are performing. The increasing angst of Americans, evident in consumer sentiment surveys, our mounting societal ills, and our fractured politics, is likely at least in part due to the K-shape.”
Not All Experts Agree on the K-Shaped Economy
Among skeptics of the influence of K-shaped economy, Lindsey Piegza, chief economist at Stifel, Nicolaus & Co., told The Financial Brand the economy should be more accurately described as “E-shaped” as middle-income consumers have the capacity and have shown a willingness to take on debt to maintain spending levels, borrowing against assets like 401(k) accounts.
Kearney, in a research report, warned that fixating on income levels undervalues other factors driving spending. The consultancy wrote, “Many brands have responded to perceived pressure by racing to the bottom on price or quietly degrading quality. Others have doubled down on premiumization, assuming insulation at the top of the K. Both approaches miss the same reality: consumers across the spectrum are increasingly sensitive to value mismatches, not just price points.”
The Financial Times recently stated that talk of a K-shaped economy has been overdone. If upper-income households were driving an ever-higher portion of U.S. spending, GDP growth would be slower because higher earners save more, the financial publication argued.
Of the disparity in spending among income groups, the Financial Times reasoned, “A more compelling, if quite speculative, theory: the rapid cooling of the job market (less hiring and lower wage growth even as unemployment has stayed low) has led working people to reassess their prospects for the future and change their spending patterns accordingly.”
BrainTrust
Jeff Sward
Founding Partner, Merchandising Metrics
Anil Patel
Founder & CEO, HotWax Commerce
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Recent Discussions
Discussion Questions
Does the K-shaped economy idea accurately sum up recent spending patterns within U.S. retail?
What underlying spending drivers may the theory be missing?
Will K-shaped economic conditions persist over the next few years?
Poll
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Our data show that last year all volume growth in retail was driven by higher-income consumers. Lower- and middle-income consumers reduced the amount they bought. The most obvious implication is that any retailer exposed to segments reducing spend will find the going tougher, and vice versa. However, these are macro-level views: they ignore the nuance that consumers decide what to cut and what to prioritize. A retailer with a strong proposition can still grow spending among constrained groups. Equally, a retailer that serves constrained groups – like Walmart – can grow by pulling in more consumers from more robust cohorts. In a nutshell: the shape of the economy is important, but it’s not half as important as the strength of a retail proposition.
For the grocery side of retail, higher-income shoppers continue to align with stores who deliver well on high quality, variety and customer service, especially households of two or less. For mid to lower incomes, price driven formats continue to align on low prices, ad values and selection. But our past data shows that impact from the economy shows less of a stark break, largely floating up and down for both of these groups, just not equally. In a down economy, even higher income shoppers still seek bargains and value, or shift categories to save. Lower income groups adjust in a down economy out of greater need. And so both types of grocery formats must be compelling and deliver on their stated promise.
I’m not clear on what we’re aiming for here, as very different ideas are being conflated: the performance of the economy as a whole vs. individual components (companies)
Obviously, a downward shift in spending (by all of the lower income groups) is going to harm retailers who cater to those groups, regardless of what the uppermost do. And speaking of that latter group, when your household income is $800K (or whatever) a 2% change in your spending is quite a bit more consequential than the same percentage in a $20K household (or even a $100K one); so breaking out the numbers by decile, while interesting, can also be misleading.
The K-shaped economy is forcing an uncomfortable truth in retail: you cannot serve every customer equally and win.
Higher-income shoppers still spend, but they punish friction instantly. Lower-income shoppers are cutting back and demanding unmistakable value. Designing one “average” experience for both is a strategic cop-out.
This moment demands hard choices. Where do you protect margin versus compete on price? Where do you simplify versus elevate? Where do you invest—and where do you stop?
In a K-shaped economy, CX isn’t about delight. It’s about discipline. The retailers that emerge stronger will be the ones willing to make clear trade-offs, design different experiences for different customers, and execute with ruthless consistency.
The K-shaped economy means that fewer and fewer people can purchase homes, which retards spending on setting up households. One percent of the population simply cannot maintain the whole economy. NRF should be screaming about this.
The K-shaped economy does explain part of what we’re seeing in U.S. retail, but it’s an incomplete lens. Yes, higher-income shoppers are propping up topline growth at retailers like Walmart and Costco, while lower and middle income consumers pull back. But income alone misses key drivers such as household balance-sheet health, debt tolerance, job security perceptions, and access to value formats like off-price and wholesale.
This isn’t just macroeconomics but it is a segmentation and experience problem. Retailers that blend value signaling, flexible fulfillment, and data-driven personalization can serve “value seekers” across income tiers. K-shaped conditions may persist, but adaptability and not just income targeting can determine winners.
The bar chart and the department store vs wholesale club numbers make it pretty simple. Market share is drifting downhill and there is nothing going on to suggest that trend will change any time soon. It’s a 30 year trend that is actually becoming kind of uncomfortable. I love reading about Macy’s bouncing back, but it’s in a fraction of the stores versus 5-10 years ago. And if anything happened to rattle the top 20%, it sounds like we’d be talking about recessionary numbers pretty quickly. I’m going to say that it’s a T-shaped economy. T for tariffs. The math and the emotions of tariffs have totally reshaped the economy. Household perceptions and budgets, retailer and brand margins and investment spending, and how retailers and brands are managing their supply chain relationships. It’s hard to understate the ripple effects that have emanated from the whole tariff scenario.
The idea of a K-shaped economy does a fairly accurate job of describing what we’re seeing in retail today — a widening gap between higher-income households that continue to spend confidently and value-oriented consumers who are becoming more selective. Traffic patterns, category performance, and promotional intensity across the industry collectively indicate increasingly bifurcated consumer behavior, in which premium and discount formats can both thrive while mid-tier players struggle to establish their relevance. This isn’t just a temporary blip; it reflects structural pressures tied to wage growth disparities, inflation in everyday essentials, and shifting perceptions of value that are reshaping how different households prioritize spending.
That said, the theory can sometimes oversimplify what’s really driving the divide. Beyond income levels, factors like household debt, tariff-driven price increases, employment stability, and access to credit are influencing how shoppers behave — and these drivers don’t always fit neatly into a single economic narrative. The growing role of technology is also significant; personalization, loyalty programs, and retail media ecosystems enable retailers to segment customers more precisely, which can exacerbate the appearance of a K-shaped market even when underlying demand is more nuanced.
Looking ahead, I do believe K-shaped conditions are likely to persist unless broader economic policy shifts meaningfully change consumer sentiment or cost structures. As long as certain households feel financially insulated while others remain under pressure, retailers will need to operate in a world where assortment strategy, pricing architecture, and customer experience must address two very different spending mindsets simultaneously. The winners will be those who understand this bifurcation and develop flexible models that serve both value-driven and premium-oriented shoppers without compromising the clarity of their positioning.
The K-shaped view helps explain why results across retail look uneven, but it does not fully explain retail performance. Higher-income customers are still spending, while more price-sensitive groups are cutting back and choosing carefully. What matters more is whether a retailer has a clear proposition and delivers consistent value to the customer it serves.
I have seen retailers struggle when they try to appeal to everyone with one broad strategy. That approach often leads to unclear positioning, mixed pricing signals, and an inconsistent store experience. The retailers performing best right now are making deliberate choices about who they serve and how they deliver value. In my view, execution and positioning matter more than the K-shape itself.
Walmart has been doing the balancing act for a while now. Can that last?
They are grabbing value-minded customers, where Target has faltered.
Also ‘economical’ enough for the wealthy, who have many houses that need daily items. (And housekeeping staff who might shop already at Walmart).
Walmart is, for the moment, not getting the Billionaire “heat” that Bezos and Amazon get.
(Only because Bezos’ ecosystem is louder & in your face flaunting wealth- Italy take over, rockets to nowhere/no reason and the demolition of WaPo).
But… at some point will average Americans turn on (or politicize) the Walton family for having many billionaires (5) made rich by the company who dangles “roll backs”?
Target was once a retail darling.
Long way to go before 2028 election… and high volatility through then.
Sooner is S. Court decision. A decisive moment for retailers. BUT wont sink in until after, to consumers… paying the higher prices is not refundable & will NOT be getting the relief of tariffs called “illegal”.
The K-shaped economy started with the tax cuts of 80s. We didn’t see it, but it was accelerated by the next three major tax cuts in early 20, 2018 and 2025. While today’s topic is about retail, a K-shaped economy is terrible for the country overall and therefore for retail. Now that we have a catchy name for it, people seem to be paying more attention. But we have been talking about income and wealth inequality for decades. No economic analysis shows that this trend is overall positive for the people or the country.
The quote by Lindsey Piegza, in the discussion, says that middle-income consumers have the capacity and have shown a willingness to take on debt to maintain spending levels by borrowing against assets like 401(k) accounts may be true, but should they? Are we building an economy for most citizens to go into debt and mortgage their future, while the very top continues to prosper? That spiral has a destructive conclusion.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”. WB
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Our data show that last year all volume growth in retail was driven by higher-income consumers. Lower- and middle-income consumers reduced the amount they bought. The most obvious implication is that any retailer exposed to segments reducing spend will find the going tougher, and vice versa. However, these are macro-level views: they ignore the nuance that consumers decide what to cut and what to prioritize. A retailer with a strong proposition can still grow spending among constrained groups. Equally, a retailer that serves constrained groups – like Walmart – can grow by pulling in more consumers from more robust cohorts. In a nutshell: the shape of the economy is important, but it’s not half as important as the strength of a retail proposition.
For the grocery side of retail, higher-income shoppers continue to align with stores who deliver well on high quality, variety and customer service, especially households of two or less. For mid to lower incomes, price driven formats continue to align on low prices, ad values and selection. But our past data shows that impact from the economy shows less of a stark break, largely floating up and down for both of these groups, just not equally. In a down economy, even higher income shoppers still seek bargains and value, or shift categories to save. Lower income groups adjust in a down economy out of greater need. And so both types of grocery formats must be compelling and deliver on their stated promise.
I’m not clear on what we’re aiming for here, as very different ideas are being conflated: the performance of the economy as a whole vs. individual components (companies)
Obviously, a downward shift in spending (by all of the lower income groups) is going to harm retailers who cater to those groups, regardless of what the uppermost do. And speaking of that latter group, when your household income is $800K (or whatever) a 2% change in your spending is quite a bit more consequential than the same percentage in a $20K household (or even a $100K one); so breaking out the numbers by decile, while interesting, can also be misleading.
The K-shaped economy is forcing an uncomfortable truth in retail: you cannot serve every customer equally and win.
Higher-income shoppers still spend, but they punish friction instantly. Lower-income shoppers are cutting back and demanding unmistakable value. Designing one “average” experience for both is a strategic cop-out.
This moment demands hard choices. Where do you protect margin versus compete on price? Where do you simplify versus elevate? Where do you invest—and where do you stop?
In a K-shaped economy, CX isn’t about delight. It’s about discipline. The retailers that emerge stronger will be the ones willing to make clear trade-offs, design different experiences for different customers, and execute with ruthless consistency.
The K-shaped economy means that fewer and fewer people can purchase homes, which retards spending on setting up households. One percent of the population simply cannot maintain the whole economy. NRF should be screaming about this.
The K-shaped economy does explain part of what we’re seeing in U.S. retail, but it’s an incomplete lens. Yes, higher-income shoppers are propping up topline growth at retailers like Walmart and Costco, while lower and middle income consumers pull back. But income alone misses key drivers such as household balance-sheet health, debt tolerance, job security perceptions, and access to value formats like off-price and wholesale.
This isn’t just macroeconomics but it is a segmentation and experience problem. Retailers that blend value signaling, flexible fulfillment, and data-driven personalization can serve “value seekers” across income tiers. K-shaped conditions may persist, but adaptability and not just income targeting can determine winners.
The bar chart and the department store vs wholesale club numbers make it pretty simple. Market share is drifting downhill and there is nothing going on to suggest that trend will change any time soon. It’s a 30 year trend that is actually becoming kind of uncomfortable. I love reading about Macy’s bouncing back, but it’s in a fraction of the stores versus 5-10 years ago. And if anything happened to rattle the top 20%, it sounds like we’d be talking about recessionary numbers pretty quickly. I’m going to say that it’s a T-shaped economy. T for tariffs. The math and the emotions of tariffs have totally reshaped the economy. Household perceptions and budgets, retailer and brand margins and investment spending, and how retailers and brands are managing their supply chain relationships. It’s hard to understate the ripple effects that have emanated from the whole tariff scenario.
The idea of a K-shaped economy does a fairly accurate job of describing what we’re seeing in retail today — a widening gap between higher-income households that continue to spend confidently and value-oriented consumers who are becoming more selective. Traffic patterns, category performance, and promotional intensity across the industry collectively indicate increasingly bifurcated consumer behavior, in which premium and discount formats can both thrive while mid-tier players struggle to establish their relevance. This isn’t just a temporary blip; it reflects structural pressures tied to wage growth disparities, inflation in everyday essentials, and shifting perceptions of value that are reshaping how different households prioritize spending.
That said, the theory can sometimes oversimplify what’s really driving the divide. Beyond income levels, factors like household debt, tariff-driven price increases, employment stability, and access to credit are influencing how shoppers behave — and these drivers don’t always fit neatly into a single economic narrative. The growing role of technology is also significant; personalization, loyalty programs, and retail media ecosystems enable retailers to segment customers more precisely, which can exacerbate the appearance of a K-shaped market even when underlying demand is more nuanced.
Looking ahead, I do believe K-shaped conditions are likely to persist unless broader economic policy shifts meaningfully change consumer sentiment or cost structures. As long as certain households feel financially insulated while others remain under pressure, retailers will need to operate in a world where assortment strategy, pricing architecture, and customer experience must address two very different spending mindsets simultaneously. The winners will be those who understand this bifurcation and develop flexible models that serve both value-driven and premium-oriented shoppers without compromising the clarity of their positioning.
The K-shaped view helps explain why results across retail look uneven, but it does not fully explain retail performance. Higher-income customers are still spending, while more price-sensitive groups are cutting back and choosing carefully. What matters more is whether a retailer has a clear proposition and delivers consistent value to the customer it serves.
I have seen retailers struggle when they try to appeal to everyone with one broad strategy. That approach often leads to unclear positioning, mixed pricing signals, and an inconsistent store experience. The retailers performing best right now are making deliberate choices about who they serve and how they deliver value. In my view, execution and positioning matter more than the K-shape itself.
Walmart has been doing the balancing act for a while now. Can that last?
They are grabbing value-minded customers, where Target has faltered.
Also ‘economical’ enough for the wealthy, who have many houses that need daily items. (And housekeeping staff who might shop already at Walmart).
Walmart is, for the moment, not getting the Billionaire “heat” that Bezos and Amazon get.
(Only because Bezos’ ecosystem is louder & in your face flaunting wealth- Italy take over, rockets to nowhere/no reason and the demolition of WaPo).
But… at some point will average Americans turn on (or politicize) the Walton family for having many billionaires (5) made rich by the company who dangles “roll backs”?
Target was once a retail darling.
Long way to go before 2028 election… and high volatility through then.
Sooner is S. Court decision. A decisive moment for retailers. BUT wont sink in until after, to consumers… paying the higher prices is not refundable & will NOT be getting the relief of tariffs called “illegal”.
The K-shaped economy started with the tax cuts of 80s. We didn’t see it, but it was accelerated by the next three major tax cuts in early 20, 2018 and 2025. While today’s topic is about retail, a K-shaped economy is terrible for the country overall and therefore for retail. Now that we have a catchy name for it, people seem to be paying more attention. But we have been talking about income and wealth inequality for decades. No economic analysis shows that this trend is overall positive for the people or the country.
The quote by Lindsey Piegza, in the discussion, says that middle-income consumers have the capacity and have shown a willingness to take on debt to maintain spending levels by borrowing against assets like 401(k) accounts may be true, but should they? Are we building an economy for most citizens to go into debt and mortgage their future, while the very top continues to prosper? That spiral has a destructive conclusion.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”. WB