The Great Re-evaluation: Navigating the Consumption Downgrade of the American Middle Class

Executive Summary

The American middle class, the traditional engine of the nation’s consumer economy, is undergoing a profound and structural transformation in its spending behavior. This phenomenon, termed the “consumption downgrade,” is not a temporary reaction to cyclical economic pressures but a durable re-evaluation of value driven by a deep and persistent financial squeeze. Faced with stagnating real wages, record-high debt levels, and a crippling housing affordability crisis, middle-class households are fundamentally altering their purchasing decisions. This report provides an exhaustive analysis of this shift, diagnosing its root causes, detailing its manifestations across key retail and service categories, and examining the ascendant business models that are capitalizing on this new consumer landscape.

The analysis reveals that the middle class is not a monolith but a bifurcated cohort. A lower-income segment is engaging in a necessity-driven downgrade, cutting back on essentials out of financial desperation. Simultaneously, an upper-middle-class segment is pursuing a discretionary downgrade, proactively optimizing for value and shedding brand premiums they no longer see as justified. This dual reality is reshaping the market, fueling the growth of both deep-discount channels and premium private-label offerings.

Spending retrenchment is most acute in four key areas. In dining, consumers are trading down from full-service restaurants to Quick-Service Restaurants (QSRs) and at-home meals, prioritizing affordability and convenience over experience. In apparel, a seismic shift towards the secondhand market is underway, with resale growing five times faster than traditional retail, driven by a potent combination of value-seeking and sustainability concerns among younger consumers. In entertainment, the pivot to at-home options is nearly complete, but the sector now faces a new challenge: “subscription fatigue.” Consumers are pushing back against rising costs by churning services and flocking to cheaper, ad-supported tiers. Finally, spending on big-ticket discretionary goods like electronics and home improvement is being deferred as households prioritize essentials and debt service.

This spending shift has catalyzed the rise of powerful, value-driven consumption models. Private labels have shed their stigma, achieving record sales and market share as retailers like Walmart and Target innovate with tiered portfolios that offer everything from basic value to premium, trend-forward products. The secondhand market has professionalized through online platforms, becoming a mainstream channel for a broad demographic. Subscription services, while still growing, must now contend with a consumer who demands flexibility and control over cost.

Leading retailers are not merely reacting to this trend but are actively shaping it. Walmart’s multi-tiered private label strategy, Target’s curated “Tar-zhay” value proposition, and Costco’s unassailable Kirkland Signature brand demonstrate sophisticated approaches to capturing the discerning, value-conscious consumer. These strategies are increasingly powered by a self-reinforcing flywheel where exclusive private labels drive store traffic and create valuable first-party data, which in turn fuels high-margin retail media networks.

For brands and retailers, navigating this new era requires a fundamental strategic reorientation. The consumption downgrade is an unbundling of the traditional product, as consumers selectively pay for the physical item while rejecting the embedded costs of marketing, branding, and newness. Success no longer hinges on selling products, but on solving the complex financial and lifestyle challenges of the modern American household. The middle-class consumer has not become “cheap”; they have become profoundly “discerning,” and their loyalty will be granted only to those who deliver transparent, demonstrable, and authentic value.

The New Economic Reality for the American Middle Class

To comprehend the specific manifestations of the consumption downgrade, it is first essential to understand the foundational economic context in which the American middle class operates. This cohort, long the bedrock of American prosperity, is now defined by a precarious financial reality. A combination of stagnant real wage growth, unprecedented debt burdens, and a structural housing affordability crisis has created a sustained pressure that compels a fundamental re-evaluation of spending habits. This section defines the modern middle class, dissects the anatomy of its financial strain, and explores the resulting psychological shift that underpins the consumption downgrade.

Defining the Modern American Middle Class: A Segment Under Pressure

The term “middle class” is often used amorphously in political and social discourse, but for analytical purposes, a clear, data-driven definition is crucial. The Pew Research Center provides a widely accepted framework, defining middle-income households as those with an annual income that is two-thirds to double that of the U.S. median household income, adjusted for household size.¹ Based on 2022 income data, this places a three-person household in the middle class with an income ranging from approximately $56,600 to $169,800.³ In 2022, about 52% of U.S. adults fell into this category.³

However, this national average masks a critical reality: being middle class is a highly localized experience. The income required to achieve a middle-class lifestyle varies dramatically depending on the cost of living. As the data in Table 1 illustrates, the financial realities are starkly different across the country. In a high-cost state like New Jersey, a household needs to earn between $64,224 and $192,692 to be considered middle class. In California, the range is $61,028 to $183,102. In contrast, in a low-cost state like Mississippi, the middle-class threshold is a mere $35,142 to $105,438.⁶ This geographic disparity means that a household earning $70,000 a year could be comfortably middle class in Birmingham, Alabama, but would fall into the lower-income tier in many parts of California. For businesses with a national footprint, this variation is a crucial factor in understanding consumer capacity and behavior.

Table 1: Middle-Class Income Thresholds by State (Select States, 2022 Data)

State	Median Household Income	Lower Middle-Class Bound (2/3 of Median)	Upper Middle-Class Bound (2x Median)
New Jersey	$96,346	$64,224	$192,692
Maryland	$94,991	$63,321	$189,982
Massachusetts	$94,488	$62,986	$188,976
California	$91,551	$61,028	$183,102
Mississippi	$52,719	$35,142	$105,438
West Virginia	$54,329	$36,216	$108,658
Louisiana	$55,416	$36,940	$110,832
Arkansas	$54,658	$36,439	$109,316

Source: SmartAsset analysis of Pew Research Center methodology and U.S. Census Bureau data ⁶

Compounding this pressure is the long-term trend of a shrinking middle class. The share of American adults living in middle-income households has steadily contracted over the past five decades, falling from a clear majority of 61% in 1971 to just 50% in 2021.² This hollowing out of the economic center signifies a move towards the income extremes, with more households falling into lower-income brackets or rising to upper-income ones, eroding the large, stable consumer base that once drove predictable growth.

The Anatomy of Financial Strain: A Three-Front Squeeze

The pressure on the middle class is not the result of a single factor but a confluence of three powerful and sustained economic forces: a precarious race between wages and inflation, a historic accumulation of debt, and a structural housing crisis that consumes an ever-larger share of household income.

The Real Wage Squeeze

On the surface, nominal wages have been growing. However, for the average household, the critical measure is real wage growth—the change in wages after accounting for inflation. This determines whether a family’s purchasing power is actually increasing. Recent data presents a mixed and precarious picture. Between June 2024 and June 2025, nominal average weekly wages grew by 3.4%, outpacing the 2.7% inflation rate over the same period. This yielded a modest real wage gain of 0.7%, suggesting a slight increase in purchasing power.⁸

However, this short-term gain must be viewed in a broader context of significant erosion. An analysis examining the period from December 2020 to December 2024—a timeframe that captures the recent inflationary surge—reveals a more troubling trend. Over these four years, cumulative inflation soared by 21.2%, while nominal wages grew by only 17.3%. The result was a net decline in real earnings, or purchasing power, of 3.2% nationwide.⁹ This means that despite receiving larger paychecks in dollar terms, the average middle-class family could afford less than they could four years prior. This persistent gap between pay and the cost of living is a primary driver of the financial anxiety that fuels the consumption downgrade. While data from the Economic Policy Institute shows that low-wage workers have experienced historically fast real wage growth since 2019, middle-wage growth has been comparatively slower, compounding the pressure on the very cohort that defines the middle class.¹⁰

The Debt Overhang

The second front of the financial squeeze is a massive and growing debt burden. As of the first quarter of 2025, total U.S. household debt reached a record high of $18.20 trillion.¹¹ While mortgage debt constitutes the largest portion, the most immediate pressure on discretionary spending comes from high-interest, non-housing debt.

Credit card debt has become a critical indicator of household financial stress. Balances stood at a staggering $1.18 trillion in the first quarter of 2025.¹¹ More alarmingly, delinquency rates have been rising steadily, reaching levels not seen since the 2008 financial crisis.¹¹ This suggests that a growing number of households are unable to keep up with payments, relying on revolving credit to cover essential expenses. Auto loan balances tell a similar story, standing at $1.64 trillion with their own rising delinquency rates.¹³

This debt is not distributed evenly across generations. An Experian study from Q3 2024 shows that while Generation X (ages 44-59) carries the highest average debt balances, the rate of debt accumulation is fastest among Generation Z (ages 18-27), whose total debt grew by an astonishing 30.9% year-over-year.¹⁴ This indicates that younger generations, who will form the future middle class, are beginning their economic lives on increasingly precarious footing, saddled with significant liabilities from the outset.

The Housing Affordability Crisis

The third and perhaps most impactful front of the squeeze is the structural crisis in housing affordability. As the largest fixed cost for most families, housing expenses have a profound and direct impact on the amount of income available for all other forms of consumption. According to the NAHB/Wells Fargo Cost of Housing Index for the first quarter of 2025, a typical family earning the national median income would need to allocate 35% of its income to make the mortgage payment on a median-priced existing home and 36% for a median-priced new home.¹⁵ These figures are significantly above the 30% threshold traditionally used to define affordability, meaning a large portion of the American middle class is officially “cost-burdened.”

In high-cost metropolitan areas, the situation is dire. In San Jose, California, a staggering 88% of a typical family’s income is required to afford a median-priced home.¹⁵ For a household in this position, discretionary income is virtually non-existent. This structural drain on household budgets is not a temporary issue; it is a long-term reality that severely constrains spending power. The dramatic increase in mortgage rates since 2021 has exacerbated this crisis, making homeownership a more distant dream for many and locking renters into a cycle of high monthly payments.¹⁷ This has created a significant divergence in financial health within the middle class itself. A household that secured a sub-4% mortgage before 2022 has a vastly different financial reality than an otherwise identical household paying current market rent or a 7% mortgage. This “Housing Anchor” effect means that a family’s housing status can be a more powerful predictor of its consumption behavior than its income bracket alone, with renters and recent homebuyers experiencing the most acute form of the consumption downgrade.

The Psychology of Downgrading: From Aspiration to Rationality

Sustained financial pressure inevitably leads to a psychological shift. The consumption downgrade is therefore not merely an economic phenomenon but also a behavioral one, rooted in pervasive anxiety and a rational recalculation of value.

Consumer sentiment has remained stubbornly below pre-pandemic levels, reflecting a deep-seated unease about the economic future.¹⁸ An April 2025 Pew Research Center survey captures this pessimism vividly: 28% of U.S. adults expect their personal financial situation to be worse in a year, a significant jump from 16% who felt that way in 2024.¹⁹ This anxiety is grounded in reality. The same survey found that 19% of middle-income Americans report being unable to pay some of their bills in a typical month, and a precarious 48% lack an emergency fund that could cover their expenses for three months.¹⁹

This state of financial precarity forces a change in consumption philosophy. As economic growth slows and income uncertainty rises, consumers naturally become more cautious and rational in their purchasing decisions.²⁰ The focus shifts away from the aspirational pursuit of brands and high-end positioning towards a pragmatic prioritization of “cost-effectiveness and practicality”.²⁰ It is a move from a mindset of “what I want” to “what I need” and “what is worth it.” Consumers are becoming, as one analysis notes, “more rational, more selective, and more focused on real value”.²⁴ This is particularly true for younger generations, who are re-evaluating traditional life values and are less inclined to follow trends blindly, focusing instead on their real needs and long-term interests.²⁰ This is not simply about spending less; it is about spending differently, with a new, more discerning eye for what constitutes genuine value.

This shift has created a bifurcated reality within the middle class. The lower-middle segment, facing the most intense financial pressure, is engaging in a necessity-driven downgrade. Their choices are dictated by survival; they are forced to trade down to the lowest-cost options, cut back on essential categories, and defer all non-essential purchases. In contrast, the upper-middle segment, which has a greater financial cushion, is engaging in a discretionary downgrade. Theirs is a downgrade of choice, not necessity. They are proactively optimizing their spending, shedding brand premiums they deem unjustified and seeking out high-quality private labels or alternative consumption models that offer superior value for money. The simultaneous growth of deep-discount retailers like Dollar General and premium private labels like Walmart’s Bettergoods is a direct reflection of retailers adapting to serve these two distinct segments of the re-evaluating middle class.²⁵

A Cross-Category Analysis of Spending Retrenchment

The financial pressures detailed in the previous section are not abstract economic forces; they translate directly into tangible changes in household spending. The consumption downgrade manifests as a series of strategic pullbacks and trade-downs across a wide range of product and service categories. Middle-class households are making deliberate choices about where to cut back, where to seek value, and which expenses can be deferred or eliminated. This section provides a granular, data-driven analysis of these shifts in four key areas: dining, apparel, entertainment, and discretionary goods.

The Dining Downgrade: From Full-Service to QSR and At-Home

The restaurant industry serves as a clear barometer of middle-class discretionary spending, and the data indicates a significant and ongoing trade-down. Consumers are shifting their spending away from traditional, higher-cost full-service restaurants (FSRs) towards more affordable and convenient options like Quick-Service Restaurants (QSRs) and fast-casual establishments. An analysis of spending at top restaurant chains in 2024 revealed that limited-service restaurants captured over 80% of consumer spend, while full-service dining experienced steeper declines in demand throughout the year.²⁷ Consumer surveys confirm this trend, showing that while restaurant visits are declining across all categories, QSRs have seen the smallest decrease, a resilience attributed directly to their affordability.²⁸

The primary drivers of this shift are a relentless focus on value and convenience. QSRs have a structural cost advantage over FSRs. As of 2024, QSR inflation stood at 3.6% compared to 4.3% for full-service establishments, and their labor cost growth has also been slower.²⁹ This allows them to offer aggressive value promotions and meal deals, which have proven highly effective in attracting budget-conscious consumers. Data from Circana shows that such value offerings can boost traffic by more than 5% for a chain, a significant impact in a competitive market.³⁰

Beyond simply switching venues, consumers are adopting new behaviors to manage their dining expenses. A 2024 survey found that 46% of respondents reported spending less of their disposable income on restaurants compared to the previous year. A key tactic for saving money is simply ordering fewer items per visit.²⁸ This indicates a move away from multi-course meals or add-ons like appetizers and desserts. Furthermore, the line between dining out and eating at home is blurring with the sustained rise of takeout and delivery. A remarkable 57% of Americans now prefer ordering takeout or delivery over dining in a restaurant, with convenience being a primary motivator.³¹ This trend favors QSRs and fast-casual chains, which are better equipped for high-volume off-premise business, and further solidifies the move towards lower-cost, at-home consumption experiences.

The Apparel & Accessories Reset: The Secondhand Boom

The apparel and accessories category is undergoing a structural reset, driven by the explosive growth of the secondhand market. This is not a cyclical dip but a fundamental shift in how middle-class consumers, particularly younger ones, acquire clothing. In 2024, the U.S. secondhand apparel market grew five times faster than the broader retail clothing market, a staggering disparity that highlights where consumer momentum is heading.³² Market projections forecast that the U.S. resale market will reach $74 billion by 2029, solidifying its position as a major force in the industry.³²

This boom is fueled by a powerful combination of value-seeking and evolving consumer values. For the financially strained middle class, secondhand offers a clear path to affordability. However, the trend is also propelled by the preferences of Gen Z and millennial consumers, who are increasingly motivated by sustainability and the desire for unique, non-mass-market items.³³ This has broadened the appeal of thrifting far beyond its traditional base. A record 58% of all U.S. consumers reported shopping for secondhand apparel in 2024, demonstrating its mainstream acceptance.³²

The rise of online resale platforms has been a critical enabler of this growth. Online resale grew eight times faster than the overall clothing retail sector in 2024.³⁶ Companies like ThredUp and Poshmark have professionalized the experience, offering the convenience, broad selection, and trust that modern consumers expect, making shopping for pre-owned items as seamless as buying new.³²

The impact of this shift is being felt across the traditional retail landscape. Mid-tier brands and retailers are facing direct competition from the resale market. For instance, Signet Jewelers, often seen as a proxy for affordable luxury goods for the middle class, saw its U.S. sales decline by 5%, reflecting a change in spending habits and priorities in this category.²⁵ Consumers are demonstrating a new willingness to accept a certain level of “frictional value”—the time and effort required to browse a thrift store or online resale site—in exchange for significant cost savings and the potential to find unique pieces. This challenges the long-held retail assumption that consumers will always pay a premium for a frictionless experience.

The Entertainment Pivot: At-Home Dominance and Subscription Fatigue

The entertainment landscape has been decisively reshaped in favor of at-home consumption, a trend accelerated by the pandemic but now cemented by economic pressures. In 2024, U.S. consumer spending on at-home entertainment formats surged by 21% to reach an enormous $57.2 billion. In stark contrast, the U.S. box office continued its decline, falling 15.8%.³⁸ The at-home entertainment market is now more than seven times the size of the theatrical box office, a dramatic reversal from just a decade ago when the two were much closer in scale.

Subscription Video on Demand (SVOD) has been the engine of this growth, with spending up 25.3% to over $52 billion in 2024.³⁸ However, the SVOD market is now grappling with significant headwinds born from its own success. Consumers are reporting “subscription fatigue,” feeling overwhelmed by the sheer number of services required to access the content they want and frustrated by relentless price hikes.⁴⁰ The average monthly household spend on SVOD services has risen, and consumers are acutely price-sensitive. A 2025 Deloitte survey found that a hypothetical $5 monthly price increase would lead 60% of consumers to cancel their favorite SVOD service.⁴⁰

This cost-consciousness is a clear manifestation of the consumption downgrade within digital services and has led to a crucial pivot in the market: the rise of ad-supported tiers. In a direct trade-off of experience for cost savings, 54% of SVOD subscribers now have at least one ad-supported plan, an 8-percentage-point increase from 2024.⁴⁰ This represents another example of the “good enough” revolution, where consumers are willing to accept a less-premium experience (watching ads) to achieve their primary goal (accessing content) at a lower price.

Adding another layer of complexity for traditional media companies is the growing competition from social media. Social platforms are no longer just for communication; they are dominant entertainment venues, especially for younger generations. A majority of Gen Z and millennial consumers report getting better TV and movie recommendations from social media than from the streaming services themselves. Gen Z, in particular, now spends more of their daily entertainment time on social platforms and watching user-generated content than they do watching traditional TV and movies.⁴⁰ This competition for finite attention and time represents a long-term strategic threat to the subscription-based entertainment model.

Discretionary Goods on Hold: Electronics, Home, and Hobbies

When household budgets tighten, large, deferrable purchases are often the first to be postponed. Retail sales data clearly reflects this reality, showing a marked softness in categories for discretionary goods. The National Retail Federation’s 2025 Top 100 Retailers report highlights that the electronics sector is in an “off-cycle.” Consumers are holding onto their existing smartphones, televisions, and other devices for longer periods, a behavior that directly contributed to a 5% sales decrease for Best Buy.²⁵

A similar trend is visible in the hardware and home improvement sector. While The Home Depot has managed to sustain growth by focusing on the professional contractor market, Lowe’s, which is more oriented towards DIY consumers, saw its sales fall by 3%.²⁵ This suggests that middle-class homeowners are pulling back on discretionary home projects and renovations.

Data from Bank of America’s consumer checkpoint provides further confirmation of this trend, noting that consumers appear to be pulling back particularly on “bigger ticket discretionary services like airline tickets and lodging”.⁴² Taken together, these data points paint a clear picture of a consumer who is re-prioritizing spending. As the costs of non-discretionary items like food, housing, and debt service continue to climb, households are making the rational choice to delay or forgo purchases of goods and experiences that are not immediately essential. This deferment of major purchases is a core component of the middle-class consumption downgrade.

The Ascendancy of Value-Driven Consumption Models

The widespread re-evaluation of spending by the American middle class has created fertile ground for new and revitalized consumption models. As consumers shift their focus from brand prestige to demonstrable value, a trio of business models has risen to prominence: private labels, the secondhand market, and subscription services. These models are not merely benefiting from the economic environment; they are actively catering to the new consumer mindset, offering affordability, quality, and convenience in novel ways. Their success signals a structural change in the retail landscape, built on a fundamental transfer of trust from traditional brands to new intermediaries like retailers and platforms.

The Private Label Revolution: From Stigma to Status

The most significant beneficiary of the consumption downgrade has been the private label, or store brand. Once relegated to the status of a cheap, lower-quality alternative, private labels have undergone a revolution in both quality and perception, leading to explosive growth. In 2024, private label sales in the U.S. hit a record $271 billion, growing at a rate of 3.9%—nearly four times the 1% growth rate of national brands.⁴³ This is not just a dollar-figure phenomenon; it reflects a real shift in consumer choice. Since 2021, store brand unit sales have increased by over 2%, while national brand unit sales have plummeted by nearly 7%.⁴³ Today, private labels command an impressive 24% of total sales across ten major product sectors.⁴⁴

This ascendancy is rooted in a fundamental shift in consumer perception. The historical stigma associated with store brands is rapidly waning. A recent McKinsey report concluded that U.S. consumers no longer view private brands as merely a “cheaper option” to be chosen only when wallets are squeezed.⁴⁴ Survey data supports this, with 68% of global consumers now viewing private labels as good alternatives to name brands and 69% perceiving them as offering good value for the money.⁴⁵ This newfound trust is so profound that it has extended into perishable food categories, which require a high degree of consumer confidence. In 2024, refrigerated foods was the single fastest-growing private label category, a clear sign that consumers trust retailers with the quality and safety of their fresh products.⁴⁷

This change in perception has been fueled by strategic innovation from retailers. They are no longer content to offer simple knockoffs of national brand products. Instead, they are investing heavily in product development, functioning more like consumer packaged goods (CPG) companies themselves. This includes the “premiumization” of their offerings, with new lines that feature higher-quality ingredients, sophisticated packaging, and on-trend attributes.⁴⁸ Retailers are launching health-focused options, such as plant-based products or items made without artificial ingredients, and are catering to environmentally conscious consumers with eco-friendly products and sustainable packaging.²⁶ This strategic elevation of the private label category has transformed it from a choice of last resort into a destination for savvy shoppers, building a new form of consumer loyalty based on the retailer’s own brand. This entire phenomenon can be understood as a “trust transfer.” Consumers are transferring the trust they once placed almost exclusively in established national brands to the retailers they frequent. The retailer’s brand equity—built through consistent store experience, customer service, and reliability—is now being successfully transferred to the products that bear its name.

Table 2: Comparative Growth & Consumer Perception: Private Label vs. National Brands

Metric	Private Labels	National Brands
YoY Sales Growth (2024)	+3.9%	+1.0%
YoY Unit Sales Change (since 2021)	+2.0%	-7.0%
Consumer Perception (“Good Value”)	69%	(Baseline)
Consumer Perception (“Good Alternative”)	68%	(Baseline)

Source: Private Label Manufacturers Association, Circana, NielsenIQ ⁴³

The Circular Economy Takes Hold: The Secondhand Market

The second major model benefiting from the consumption downgrade is the secondhand market, which represents a core part of the burgeoning circular economy. The growth in this sector has been nothing short of spectacular. The U.S. secondhand apparel market grew by 14% in 2024, with projections showing it will reach a valuation of $74 billion by 2029.³³ On a global scale, the market is forecast to hit an immense $367 billion by that same year.³³ This growth is proving to be highly resilient and may even be accelerated by macroeconomic pressures. For example, 62% of consumers report that the threat of tariffs on new imported goods encourages them to shop secondhand instead.³⁶

The consumer profile for secondhand goods has expanded significantly. While the trend was initially championed by environmentally and style-conscious Gen Z shoppers, it has now been enthusiastically adopted by millennials and a broad swath of the middle class. In fact, data shows that the leading spenders in the resale market are now middle-income consumers, particularly those in the $80,001 to $100,000 annual income bracket.⁴⁹ Their motivations are a blend of the pragmatic and the principled: they are seeking value and a way to stretch their budgets, but they are also drawn to the sustainability benefits and the opportunity to find unique items that stand out from mass-market fashion.³⁴

The professionalization of the market through online platforms has been a key catalyst for this mainstream adoption. Digital players like ThredUp and Poshmark, as well as the increasingly sophisticated e-commerce sites of traditional thrifters like Goodwill and the Salvation Army, have transformed the experience.³⁷ They offer the convenience, broad selection, and trusted transaction environment that modern consumers demand. Social commerce has also emerged as a vital channel, with 39% of younger shoppers reporting that they made a secondhand purchase directly through a social media platform in the past year.³⁶

This trend can be viewed as consumers actively “unbundling” the traditional product. A new garment from a national brand has a price that bundles the physical item with the costs of design, manufacturing, marketing, and, crucially, the premium for “newness.” The secondhand market allows consumers to acquire the same branded physical item, with its inherent quality and style, while completely unbundling and discarding the cost of newness, resulting in a significant discount.

The Subscription Conundrum: Convenience vs. Cost

The subscription economy represents a third, more complex case. The market is undeniably massive and growing, with projections suggesting it could become a $1.5 trillion industry by 2025.⁵⁰ In the U.S. alone, the subscription box market is forecast to grow from $22.96 billion in 2025 to $75.87 billion by 2034.⁵¹ Consumer adoption has surged, with 73% of online shoppers in the U.S. using at least one subscription service in 2024.⁵²

However, this impressive growth is tempered by significant headwinds, primarily “subscription fatigue.” Consumers are feeling overwhelmed by the sheer number of subscriptions needed to access various goods and services, and they are increasingly frustrated by rising costs.⁴⁰ This leads to high rates of churn, as households constantly evaluate which services are truly essential.

In the context of the consumption downgrade, the value equation for subscriptions has fundamentally changed. The initial appeal was largely based on convenience and discovery—the “set it and forget it” model. Now, cost-conscious consumers are demanding more. The top reasons for unsubscribing are related to a lack of control: 27% of consumers would cancel if they were unable to pause or skip a delivery, and 23% would do so if they could not easily change the subscription frequency.⁵⁴

To succeed in this new environment, subscription services must evolve. The winning formula is no longer just about convenience; it is a combination of clear cost savings compared to single purchases, coupled with a high degree of user control, flexibility, and transparency about billing.⁵² The market is shifting from a passive consumption model to one that empowers the consumer, giving them the agency to manage their spending on their own terms. Successful services will be those that adapt to this demand for control, while those that rely on inflexible, opaque models will likely face continued high churn.

Case Studies in Strategic Adaptation

In a retail environment being reshaped by the middle-class consumption downgrade, the most successful players are not those who are simply weathering the storm, but those who are strategically harnessing its winds. An in-depth analysis of the three leading U.S. mass-market retailers—Walmart, Target, and Costco—reveals distinct yet highly sophisticated strategies for adapting to and capitalizing on this new consumer reality. Each has leveraged its unique strengths to build a compelling value proposition that resonates with the discerning, cost-conscious shopper, turning their private label programs into powerful engines of growth and loyalty.

Walmart: The Multi-Tiered Value Proposition

Walmart’s strategy is a masterclass in catering to a broad and economically diverse customer base through a multi-tiered approach to value. The foundation of its success remains its core private labels, such as Great Value in groceries and Equate in health and beauty. These brands are pillars of affordability and wide availability, with Great Value being purchased by an astonishing 86% of all U.S. households.⁴⁴ This foundational tier directly serves the most price-sensitive consumers, including the segment of the middle class engaging in a necessity-driven downgrade.

However, Walmart has recognized that the consumption downgrade is not solely about a race to the bottom on price. To capture the more affluent, “discretionary downgrade” consumer, the company made its most significant private brand move in two decades with the 2024 launch of Bettergoods.²⁶ This brand is explicitly designed to be a premium, trend-forward food line. It focuses on chef-inspired recipes, plant-based options, and products made without artificial ingredients, addressing the modern consumer’s desire for higher quality and healthier choices. Crucially, Walmart leverages its scale to deliver this premium experience at an accessible price point, with most

Bettergoods items priced under $5.²⁶ This allows Walmart to compete not just with other grocers, but with specialty food stores, capturing spending from middle-class households that are trading down from more expensive options but are unwilling to compromise on quality or culinary trends.

Powering this dual strategy is a formidable tech-fueled ecosystem. Walmart is increasingly operating like a data-driven CPG company.⁵⁶ Its retail media arm,

Walmart Connect, which saw ad revenue jump 50% in a recent quarter, provides a high-margin revenue stream and a wealth of first-party shopper data. This data, combined with investments in AI and supply chain automation, allows Walmart to identify product gaps, optimize pricing, and develop new private label items with remarkable speed and precision.⁵⁶ The

Walmart+ subscription program serves to lock in the most valuable customers, creating a loyal cohort that fuels this entire flywheel of retail, data, and media.

Target: Capturing the “Tar-zhay” Value Shopper

Target’s strategic response is rooted in its unique brand identity as a purveyor of affordable style, or “Tar-zhay.” The retailer has cultivated a sophisticated portfolio of over 45 “owned brands” that are foundational to its business, generating over $30 billion in annual sales.⁵⁸ This portfolio is meticulously curated to target specific consumer needs and aesthetics, from the quality grocery offerings of

Good & Gather to the popular activewear line All in Motion.⁶⁰

Like Walmart, Target has adopted a tiered strategy to appeal to the bifurcated middle class. On one end, it is explicitly targeting the deep-value shopper with the 2024 launch of dealworthy, a no-frills essentials brand with nearly 400 items priced at $10 or less.⁵⁸ This brand is a direct salvo at dollar stores and is designed to capture the spending of households where every penny counts.

On the other end, Target is elevating its value proposition to create a sense of discovery and delight. A key initiative is Good & Gather Collabs, a program that involves co-creating products with celebrated chefs and food tastemakers, such as James Beard Award-winner Ann Kim.⁶¹ This strategy does more than just put food on the shelves; it aims to “celebrate food,” infusing the grocery aisle with a sense of culinary excitement and curated value. This dual approach—deep value with

dealworthy and curated value with Collabs—allows Target to effectively serve both the necessity-driven and the discretionary-downgrade segments of the middle class, all while reinforcing its core brand promise of delivering elevated products at an accessible price.

Target’s leadership has explicitly stated that the company is now “working more like a CPG company,” with a dedicated product design and sourcing unit that uses research and data analysis to identify “white space” in the market and develop winning products.⁵⁹

Costco: The Kirkland Signature Moat

Costco’s approach stands in stark contrast to the multi-brand portfolios of its competitors. Its strategy is one of singular focus and immense power, revolving entirely around its monolithic private label: Kirkland Signature. This single brand has become a retail phenomenon, accounting for roughly one-third of Costco’s total sales and generating an estimated $86 billion in revenue in 2024—a figure that would make it one of the largest CPG companies in the world if it were a standalone entity.⁶²

The Kirkland Signature strategy is built on a simple but unwavering premise: match or exceed the quality of leading national brands while underpricing them by at least 20%.⁶² This promise is not just a marketing slogan; it is an operational mandate. Costco achieves this through a combination of deep, long-term partnerships with top-tier manufacturers (who often produce the leading national brands themselves, such as Starbucks for coffee and Duracell for batteries) and a famously strict cap on its own markups, which are held to around 14-15%, far below the industry average.⁶³ This disciplined approach has built an unparalleled level of consumer trust. Shoppers don’t see Kirkland as a trade-down; they see it as a smart, high-quality choice, making it a powerful destination brand in its own right.

Furthermore, Kirkland Signature is a key driver of Costco’s superior profit margins. The company employs a sophisticated global sourcing strategy, increasingly producing or procuring Kirkland items closer to their end markets. This localization dramatically reduces transportation costs and mitigates the impact of tariffs.⁶⁵ This operational efficiency creates a virtuous cycle: Costco can pass savings on to its members, reinforcing its value proposition, while simultaneously improving its own underlying cost structure. This makes the

Kirkland Signature brand a formidable “margin engine” and creates a deep competitive moat that is exceptionally difficult for rivals to breach.⁶⁵

The divergent yet successful strategies of these three retail giants reveal a broader trend: the rise of the tiered private label portfolio. The most advanced retailers are segmenting their private label offerings to mirror the classic brand architecture of CPG leaders. They have a “good” tier for deep value (e.g., Great Value, dealworthy), a “better” tier for everyday quality (e.g., Marketside, Good & Gather), and a “best” tier for premium or trend-forward items (e.g., Bettergoods, Good & Gather Collabs). This allows them to strategically target the full spectrum of the re-evaluating middle class. This is a far more nuanced and effective approach than a one-size-fits-all private label strategy could ever achieve.

Table 3: Private Label Strategy Matrix: Walmart, Target, Costco

Retailer	Overall Strategy	“Good” Tier Brand Example	“Better” Tier Brand Example	“Best” Tier Brand Example	Key Strategic Goal
Walmart	Multi-Tiered Scale & Value	Great Value	Marketside	Bettergoods	To be the one-stop shop for all value segments, from basic needs to affordable premium.
Target	Curated “Tar-zhay” Value	dealworthy	Good & Gather	Good & Gather Collabs	To offer differentiated style and discovery at an affordable price, blending deep value with curated newness.
Costco	Singular Brand Trust & Quality	Kirkland Signature	Kirkland Signature	Kirkland Signature	To build unparalleled loyalty through a single brand that guarantees superior quality at a significant discount.

Source: Company reports and industry analysis ²⁶

Strategic Recommendations and Future Outlook

The consumption downgrade of the American middle class is not a fleeting trend but a durable, structural shift in consumer behavior. It is the rational response to a new economic reality defined by long-term wage, debt, and housing pressures. For businesses, navigating this landscape requires more than tactical price adjustments; it demands a fundamental reorientation of strategy, product development, and brand positioning. This concluding section synthesizes the report’s findings into forward-looking insights and provides an actionable playbook for building brand resilience in this new age of consumer re-evaluation.

The Future of Value: The Next Wave of Downgrading

The forces compelling the consumption downgrade are not expected to abate in the near term. Therefore, the consumer’s focus on demonstrable value will only intensify. The future of this trend will be characterized by several key developments:

• Hyper-Personalized Value: As retailers harness the power of their first-party data and AI, the concept of value will become increasingly personalized. Instead of broad promotions, consumers will receive tailored offers and product recommendations based on their specific purchasing history, financial situation, and lifestyle needs. The rise of retail media networks is the engine for this shift, transforming retailers from simple sellers of goods into sophisticated data and media companies. The powerful, self-reinforcing relationship between exclusive private labels and high-margin retail media networks will create a “Retail Media Flywheel.” Strong private brands drive traffic and generate unique data; this data makes the retailer’s media platform more valuable to national brands, who pay for access; the high-margin revenue from these ad sales is then reinvested into developing more compelling private label products, creating a virtuous cycle of growth and profitability.⁵⁶

• Sustainability as a Core Value Proposition: The connection between value and values will strengthen. For a growing segment of consumers, particularly younger ones, sustainability is not a luxury but an integral part of a product’s value. Retailers and brands that offer transparent sourcing, eco-friendly packaging, and support for the circular economy will have a distinct advantage. This will be a key differentiator in both private label development and the secondhand market.

• The Blurring of Consumption Models: The lines between retail, resale, and subscription will continue to blur. The most innovative companies will create integrated ecosystems that blend these elements. A service like Walmart+, for example, combines a membership subscription with benefits in retail (free delivery), creating a powerful loyalty loop. Future iterations could easily integrate a branded resale marketplace or exclusive access to limited-run private label products, creating a holistic value proposition that is difficult for competitors to replicate.

Playbook for Brand Resilience in the Age of Re-evaluation

In an environment where consumers are actively unbundling products from their associated marketing and brand premiums, all market participants must adapt their strategies.

For National Brands:

1. Justify the Premium: The era of opaque, brand-based pricing is over.²⁴ If a national brand commands a 30% price premium over a high-quality private label, it must be able to clearly articulate and demonstrate a 30% superiority in performance, ingredients, innovation, or experience. This requires a renewed focus on R&D and transparent communication of product benefits.

2. Innovate in the Mid-Tier: While premium private labels are attacking from below, national brands must defend the crucial mid-tier of the market. This means focusing innovation not just on high-end halo products, but on creating demonstrably better products in the core, mid-price segment where the bulk of middle-class spending occurs.

3. Embrace the Circular Economy: Ignoring the secondhand market is no longer an option. National brands should proactively engage with this space by launching their own branded resale programs or forming strategic partnerships with leading platforms like ThredUp.³³ This allows them to capture a new revenue stream, control their brand’s image in the resale channel, and connect with a value-driven consumer base.

4. Become a Strategic Partner to Retail Media Networks (RMNs): National brands should view RMNs not just as another advertising channel, but as a source of invaluable strategic insight. By partnering with retailers, they can gain access to granular, real-time data on how the value-conscious consumer is shopping their category, enabling more effective product development and promotion.

For Retailers:

1. Develop a Tiered Private Label Portfolio: The most effective strategy is to move beyond a single store brand and develop a “Good, Better, Best” portfolio. This allows a retailer to strategically capture all segments of the bifurcated middle class, from the necessity-driven shopper seeking deep value to the discretionary-downgrader looking for affordable luxury.²⁶

2. Integrate Secondhand: Retailers should view the secondhand market as an opportunity, not a threat. This can involve creating “store-within-a-store” resale concepts, launching integrated online marketplaces, or facilitating peer-to-peer selling. This captures a new revenue stream and reinforces the retailer’s position as a destination for value.

3. Offer Flexible Subscriptions: To combat churn and subscription fatigue, retailers must design services that prioritize consumer control. The winning formula involves transparent pricing, easy-to-use interfaces, and the ability for users to effortlessly pause, skip, or modify their subscriptions to fit their changing needs and budgets.⁵⁴

4. Leverage First-Party Data as a Strategic Asset: A retailer’s greatest competitive advantage in the modern era is its direct relationship with the consumer and the data that relationship generates. This data should be used not just for marketing personalization, but as the central nervous system for the entire business, driving product development for private labels, optimizing supply chain efficiency, and fueling the growth of high-margin retail media networks.⁵⁶

Ultimately, all players must recognize the fundamental nature of the current shift. The American middle-class consumer has not become “cheap”; they have become profoundly and permanently “discerning.” They are armed with more information than ever before and are under more financial pressure than they have been in a generation. They are willing to spend, but their loyalty and their dollars will flow only to those businesses that offer transparent, demonstrable, and authentic value. The challenge—and the opportunity—is to move from simply selling products to becoming a genuine partner in solving the complex financial and lifestyle problems of the modern American household.

Cited works

1. The American Middle Class - Key Facts, Data and Trends Since …,https://www.pewresearch.org/race-and-ethnicity/2024/05/31/the-state-of-the-american-middle-class/

2. How the American middle class has changed in the past five decades,https://www.pewresearch.org/short-reads/2022/04/20/how-the-american-middle-class-has-changed-in-the-past-five-decades/

3. Are You Middle Class? Find Out Where Your Income Ranks - Investopedia,https://www.investopedia.com/middle-class-income-8756634

4. Are you in the U.S. middle class? Try our income calculator | Pew Research Center,https://www.pewresearch.org/short-reads/2024/09/16/are-you-in-the-american-middle-class/

5. Middle Class - Research and data from Pew Research Center,https://www.pewresearch.org/topic/economy-work/income-wealth-poverty/middle-class/

6. What It Takes to Be Middle Class in America – 2024 Study - SmartAsset,https://smartasset.com/data-studies/middle-class-2024

7. Here’s what it takes to be considered middle class in 2024 for each state | FOX 29 Philadelphia,https://www.fox29.com/news/middle-class-income-salary-2024

8. Are wages keeping up with inflation? | USAFacts,https://usafacts.org/answers/are-wages-keeping-up-with-inflation/country/united-states/

9. Inflation vs. Wages: Where Salaries Haven’t Kept Pace With Rising Costs - KKSA AM,https://www.kksa-am.com/2025/03/13/inflation-vs-wages-where-salaries-havent-kept-pace-with-rising-costs/

10. Strong wage growth for low-wage workers bucks the historic trend | Economic Policy Institute,https://www.epi.org/publication/strong-wage-growth-for-low-wage-workers-bucks-the-historic-trend/

11. Average American Household Debt in 2025: Facts and Figures | The Motley Fool,https://www.fool.com/money/research/average-household-debt/

12. American Household Debt: Statistics and Demographics - Debt.org,https://www.debt.org/faqs/americans-in-debt/demographics/

13. Household Debt and Credit Report - FEDERAL RESERVE BANK of NEW YORK,https://www.newyorkfed.org/microeconomics/hhdc

14. Experian Study: Average U.S. Consumer Debt and Statistics,https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/

15. Income Growth Helps Mute Existing Affordability Constraints,https://eyeonhousing.org/2025/05/income-growth-helps-mute-existing-affordability-constraints/

16. NAHB/Wells Fargo Cost of Housing Index (CHI),https://www.nahb.org/news-and-economics/housing-economics/indices/cost-of-housing-index

17. California Housing Affordability Tracker (1st Quarter 2025) [EconTax Blog],https://lao.ca.gov/LAOEconTax/Article/Detail/793

18. Economic Sentiment and Indicators of Household Financial Wellness - Federal Reserve Bank of St. Louis,https://www.stlouisfed.org/on-the-economy/2025/jun/economic-sentiment-indicators-household-financial-wellness

19. Growing share of U.S. adults say their personal finances will be …,https://www.pewresearch.org/short-reads/2025/05/07/growing-share-of-us-adults-say-their-personal-finances-will-be-worse-a-year-from-now/

20. (PDF) Analysis of the Impact of Consumption Downgrading Trends on the Retail Market Landscape - ResearchGate,https://www.researchgate.net/publication/381543676_Analysis_of_the_Impact_of_Consumption_Downgrading_Trends_on_the_Retail_Market_Landscape

21. The Impact of Consumption Downgrading on Housing Purchase Decision of Chinese Middle Class: An Analysis Based on the Life Cycle Theory and Marriage Market Theory | Advances in Economics, Management and Political Sciences,https://www.ewadirect.com/proceedings/aemps/article/view/20064

22. www.researchgate.net,[*https://www.researchgate.net/publication/381543676_Analysis_of_the_Impact_of_Consumption_Downgrading_Trends_on_the_Retail_Market_Landscape#:~:text=Consumption%20downgrading%20refers%20to,This%20trend%20has*](https://www.researchgate.net/publication/381543676_Analysis_of_the_Impact_of_Consumption_Downgrading_Trends_on_the_Retail_Market_Landscape#:~:text=Consumption%20downgrading%20refers%20to,This%20trend%20has)

23. Analysis of the Impact of Consumption Downgrading Trends on the Retail Market Landscape | Frontiers in Business, Economics and Management - Darcy & Roy Press,https://drpress.org/ojs/index.php/fbem/article/view/22285

24. How Should Brands Respond to China’s Consumption Downgrade Trend? - STAiiRS,https://staiirs.com/how-should-brands-respond-to-chinas-consumption-downgrade-trend/

25. NRF | 2025 Top 100 Retailers - National Retail Federation,https://nrf.com/blog/2025-top-100-retailers

26. Walmart Private Label: List of 2025 Brands - Eva.guru,https://eva.guru/blog/walmart-private-label-list-of-brands/

27. 2024 Restaurant Spending Trends - Yodlee,https://www.yodlee.com/data-analytics/2024-restaurant-spending-trends

28. Q4 2024: Navigating Price Sensitivity and Changing Restaurant Trends - Revenue Management Solutions,https://www.revenuemanage.com/wp-content/uploads/2024/12/Q4-RMS-Restaurant-Consumers-General-FNL.pdf

29. 2025 Quick Service Restaurant Industry Trends and Statistics,https://pos.toasttab.com/blog/on-the-line/quick-service-restaurant-industry-trends-and-statistics

30. Circana: Restaurant traffic stalled in 2024, but diner spending rose 2%,https://www.restaurantdive.com/news/circana-definitive-us-restaurant-ranking-2025-consumer-spending-up-2-percent/745556/

31. 2024 Consumer Dining Trends: How Americans Are Spending on Restaurants and Takeout,https://www.escoffier.edu/blog/world-food-drink/consumer-dining-trend-statistics/

32. Resale’s popularity in the US could offer hedge against tariffs - Retail Dive,https://www.retaildive.com/news/thredup-2025-resale-report-tariffs-fast-fashion/743095/

33. The Future of Fashion is Resale: Key Takeaways from ThredUp’s …,https://www.treet.co/post/key-takeaways-from-thredups-2025-resale-report

34. Hand-Sewn Clothing Market Statistics 2025 - Colorful Socks,https://bestcolorfulsocks.com/blogs/news/hand-sewn-clothing-market-statistics

35. Second-Hand Apparel Market Trends, Size, Share, Growth, and Forecasts, 2025 - 2032,https://www.persistencemarketresearch.com/market-research/second-hand-apparel-market.asp

36. Secondhand Fashion Market Trends: 2025 Insights - Ultimate Thrifting,https://ultimatethrifting.com/secondhand-fashion-market-trends-2025/

37. Second Hand Apparel Market: Industry Analysis and Forecast (2025-2032),https://www.stellarmr.com/report/Second-Hand-Apparel-Market/1885

38. February 14, 2025 DEG: The Digital Entertainment Group today released its Year-End 2024 Digital Media Entertainment Report compi,https://www.degonline.org/wp-content/uploads/2025/02/f1_Year-end-2024-Digital-Media-Entertainment-report-cover-note-with-grid.pdf

39. US home entertainment grew 21% in 2024, discs down 23% - FlatpanelsHD,https://www.flatpanelshd.com/news.php?subaction=showfull&id=1739948166

40. 2025 Digital Media Trends | Deloitte Insights,https://www.deloitte.com/us/en/insights/industry/technology/digital-media-trends-consumption-habits-survey/2025.html

41. 2025 media and entertainment outlook - Deloitte,https://www.deloitte.com/us/en/insights/industry/technology/technology-media-telecom-outlooks/2025-media-entertainment-outlook.html

42. Consumer Checkpoint: Hunkered down, but healthy - Bank of America Institute,https://institute.bankofamerica.com/economic-insights/consumer-checkpoint-may-2025.html

43. Private label sales hit record in 2024 | Grocery Dive,https://www.retaildive.com/news/private-label-record-high-2024/737947/

44. The Supply Side: Private brands continue to grow retail market share in 2024,https://talkbusiness.net/2025/01/the-supply-side-private-brands-continue-to-grow-retail-market-share-in-2024/

45. Private Label & Brand Growth – NIQ Global Outlook 2025,https://nielseniq.com/global/en/news-center/2025/niqs-global-report-reveals-challenges-and-opportunities-for-private-label-and-branded-product-growth/

46. ‘Status Quo’ Wont Cut It: Private Label Market Share Threatened - The Food Institute,https://foodinstitute.com/focus/status-quo-wont-cut-it-private-label-market-share-threatened/

47. Private label brands had record sales in 2024 - Marketplace,https://www.marketplace.org/story/2025/01/24/private-label-brands-record-sales-2024

48. Brand vs Private Label Sales: 10 Grocery Trends To Watch in 2025 - IT Retail,https://www.itretail.com/blog/private-label-sales

49. From Goodwill to Goyard, the Resale Economy Surged in 2024 | Ethos,https://the-ethos.co/goodwill-to-goyard-the-resale-economy-surged-in-2024/

50. The rise of subscription economy: a win-win for consumers and businesses - ERP Today,https://erp.today/the-rise-of-subscription-economy-a-win-win-for-consumers-and-businesses/

51. United States Subscription Box Market Size, Share - 2034 - Market Research Future,https://www.marketresearchfuture.com/reports/united-states-subscription-box-market-21445

52. US Subscription Services Market Report 2024 - Mintel Store,https://store.mintel.com/report/us-subscription-services-market-report

53. 2025 Media & Entertainment Industry Predictions Report | AlixPartners,https://www.alixpartners.com/media/ow1n5vey/2025-media-entertainment-industry-predictions-report.pdf

54. The Subscription Statistics Predicting 2025 Ecommerce Trends - Sticky.io,https://www.sticky.io/post/the-subscription-statistics-predicting-2025-ecommerce-trends

55. Why Walmart Private Label Brands Are More Popular Than Ever in 2025,https://forceget.com/blog/why-walmart-private-label-brands-are-more-popular-than-ever-in-2025/

56. Walmart 2024-25: A Six-Pillar Roadmap to Digital Retail Dominance,https://www.grocerydoppio.com/articles/walmart-2024-25-a-six-pillar-roadmap-to-digital-retail-dominance

57. Walmart Private Label Brands: The 2025 List - LitCommerce Blog,https://litcommerce.com/blog/walmart-private-label/

58. Target Brands,https://corporate.target.com/about/products-services/target-brands

59. Target Builds a Private Label Foundation - Licensing International,https://licensinginternational.org/news/target-builds-a-private-label-foundation/

60. Target Stock Price Performance 2025: Growth from Private Labels - Trade The Pool,https://tradethepool.com/target-stock-price-impact-explained/

61. Target heats up its grocery assortment,https://www.grocerydive.com/news/target-grocery-private-label-additions/741589/

62. How Costco Turned Kirkland Signature Into an $86 Billion Brand by Defying Retail Norms,https://www.ainvest.com/news/costco-turned-kirkland-signature-86-billion-brand-defying-retail-norms-2505/

63. Costco’s Kirkland Signature Approach To Private Label - Doing Less With More Intention,https://www.kamcity.com/namnews/international/americas/costcos-kirkland-signature-approach-to-private-label-doing-less-with-more-intention/

64. Strategy of Costco Wholesale | Umbrex,https://umbrex.com/resources/strategy-of-the-fortune-500/strategy-of-costco-wholesale/

65. Is Kirkland’s Global Penetration Powering Costco’s Margin Story …,https://www.nasdaq.com/articles/kirklands-global-penetration-powering-costcos-margin-story