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CRE Finance World, Summer 2014

A publication of Summer issue 2014 sponsored by CRE Finance World Summer 2014 29 Chart 6 Top 10% Pre-Tax Income Share in the US, 1917–2012 Source: Piketty and Saez, 2003 updated to 2012. Series based on pre-tax cash market income including realized capital gains and excluding government transfers. 2012 data based on preliminary statistics. The Top 1% share of total income including capital gains was 22.46% as of 2012. This is almost back to its peak in 2007 at 23.50%. The 2007 level of income concentration was not experienced in the United States since 1928. Chart 7 Top 1% Share of U.S. Income (Capital Gains Fully Included) Source: Piketty and Saez, 2003 updated to 2012. Series based on pre-tax cash market income including realized capital gains and excluding government transfers. 2012 data based on preliminary statistics. In terms of personal consumption, the numbers have also changed in an unfavorable way for most Americans. According to a recent paper published by the Institute for New Economic Thinking, the bottom 95%5 accounted for 60% of personal consumption in 2012, down from 73% in 1992. Spending by the top 5% increased by 17% between 2008 and 2012. In contrast real consumption among the Bottom 95% category in 2012 remains below its 2008 level6. This is a more direct demonstration of the diminished buying power of lower- and middle-income America. Decline of Middle Class Retailers As a corollary to the concentration of US income distribution in the upper decile, there has been a decline in the fortunes of retailers that cater to the middle class. The most prominent retailers impacted by this trend are JC Penney and Sears. With the exception of the most recent quarter7, J.C. Penney has experienced negative same-store sales and earnings every quarter since Q3 2011. On January 15, 2014, J.C. Penney announced plans to close 33 underperforming stores (total J.C. Penney stores is 1,100 stores) and lay off 2,000 employees. On January 9, 2014, Sears Holdings announced the closing of its flagship downtown Chicago store. This is in addition to the approximately 300 stores closed since 2010. Sears US samestore sales declined 7.4% year over year for the nine weeks ended Jan. 4 and 6.4% for the quarter ended February 1. The decline for the Sears Domestic component was 9.2% and 7.8% respectively while the decline for K-Mart component was 5.7% and 5.1%, respectively. On an annual basis, domestic comparable store sales declined 3.8%, reflecting decreases of 3.6% at Kmart and 4.1% at Sears Domestic. Same store sales have not been positive since mid 2007. Other middle-income retailers reporting poor results and declining stock prices include Abercrombie & Fitch, American Eagle Outfitters and Aeropostale. Loehmans is being liquidated with all 39 stores closing. Darden Restaurants reported an 18% decrease in earnings year over year ending February 23, 20148. Darden Restaurants owns Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, Capital Grille and Seasons 52. Red Lobster same-restaurant sales for the quarter were 8.8% lower than last year, and Olive Garden’s were 5.4% lower9. These restaurants serve middle-income Americans. In a New York Times article10 detailing business perceptions of declining middle Challenges Confronting US Retail Properties


CRE Finance World, Summer 2014
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