A tale of two Ralphs illustrates a K-shaped economy

John and Theresa Anderson meandered through the sprawling Ralph Lauren clothing store on Rodeo Drive, shopping for holiday gifts.

They emerged carrying boxy blue bags. John scored quarter-zip sweaters for himself and his father-in-law, and his wife splurged on a tweed jacket for Christmas Day.

“I’m going for quality over quantity this year,” said John, an apparel company executive and Palos Verdes Estates resident.

They strolled through the world-famous Beverly Hills shopping mecca, where there was little evidence of any big sales.

John Anderson holds his shopping bags from Ralph Lauren and Gucci at Rodeo Drive.

(Juliana Yamada / Los Angeles Times)

One mile away, shoppers at a Ralphs grocery store in West Hollywood were hunting for bargains. The chain’s website has been advertising discounts on a wide variety of products, including wine and wrapping paper.

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

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

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The tale of two Ralphs shows how Americans are experiencing radically different realities this holiday season. It represents the country’s K-shaped economy — the growing divide between those who are affluent and those trying to stretch their budgets.

Some Los Angeles residents are tightening their belts and prioritizing necessities such as groceries. Others are frequenting pricey stores such as Ralph Lauren, where doormen hand out hot chocolate and a cashmere-silk necktie sells for $250.

People shop at Ralphs in West Hollywood.

(Juliana Yamada / Los Angeles Times)

In the K-shaped economy, high-income households sit on the upward arm of the “K,” benefiting from rising pay as well as the value of their stock and property holdings. At the same time, lower-income families occupy the downward stroke, squeezed by inflation and lackluster income gains.

The model captures the country’s contradictions. Growth looks healthy on paper, yet hiring has slowed and unemployment is edging higher. Investment is booming in artificial intelligence data centers, while factories cut jobs and home sales stall.

The divide is most visible in affordability. Inflation remains a far heavier burden for households lower on the income distribution, a frustration that has spilled into politics. Voters are angry about expensive rents, groceries and imported goods.

“People in lower incomes are becoming more and more conservative in their spending patterns, and people in the upper incomes are actually driving spending and spending more,” said Kevin Klowden, an executive director at the Milken Institute, an economic think tank.

“Inflationary pressures have been much higher on lower- and middle-income people, and that has been adding up,” he said.

According to a Bank of America report released this month, higher-income employees saw their after-tax wages grow 4% from last year, while lower-income groups saw a jump of just 1.4%. Higher-income households also increased their spending year over year by 2.6%, while lower-income groups increased spending by 0.6%.

The executives at the companies behind the two Ralphs say they are seeing the trend nationwide.

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, said it sometimes struggles to attract cash-strapped customers.

“We’re seeing a split across income groups,” interim Kroger Chief Executive Ron Sargent said on a company earnings call early this month. “Middle-income customers are feeling increased pressure. They’re making smaller, more frequent trips to manage budgets, and they’re cutting back on discretionary purchases.”

People leave Ralphs with their groceries in West Hollywood.

(Juliana Yamada / Los Angeles Times)

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

On a Ralph Lauren earnings call last month, CEO Patrice Louvet said its brand has benefited from targeting wealthy customers and avoiding discounts.

“Demand remains healthy, and our core consumer is resilient,” Louvet said, “especially as we continue … to shift our recruiting towards more full-price, less price-sensitive, higher-basket-size new customers.”

Investors have noticed the split as well.

The stock charts of the companies behind the two Ralphs also resemble a K. Shares of Ralph Lauren have jumped 37% in the last six months, while Kroger shares have fallen 13%.

To attract increasingly discerning consumers, Kroger has offered a precooked holiday meal for eight of turkey or ham, stuffing, green bean casserole, sweet potatoes, mashed potatoes, cranberry and gravy for about $11 a person.

“Stretch your holiday dollars!” said the company’s weekly newspaper advertisement.

Signs advertising low prices are posted at Ralphs.

(Juliana Yamada / Los Angeles Times)

In the Ralph Lauren on Rodeo Drive, sunglasses and polo shirts were displayed without discounts. Twinkling lights adorned trees in the store’s entryway and employees offered shoppers free cookies for the holidays.

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

They are boosting profits from sales of full-priced items. Stores that cater to high-end customers don’t offer promotions as frequently, Klowden of the Milken Institute said.

“When the luxury stores are having sales, that’s usually a larger structural symptom of how they’re doing,” he said. “They don’t need to be having sales right now.”

Jerry Nickelsburg, faculty director of the UCLA Anderson Forecast, said upper-income earners are less affected by inflation that has driven up the price of everyday goods, and are less likely to hunt for bargains.

“The low end of the income distribution is being squeezed by inflation and is consuming less,” he said. “The upper end of the income distribution has increasing wealth and increasing income, and so they are less affected, if affected at all.”

The Andersons on Rodeo Drive also picked up presents at Gucci and Dior.

“We’re spending around the same as last year,” John Anderson said.

At Ralphs, Beverly Grove resident Mel, who didn’t want to share her last name, said the grocery store needs to go further for its consumers.

“I am 100% trying to spend less this year,” she said.