There is a quiet revolution happening in how people spend money, and it defies the neat categories economists have traditionally relied on. The same person who buys store-brand cereal and hunts for fuel discounts might also drop a thousand takas on a single jar of skincare or fly business class once a year. They are not confused. They are not irrational. They are split consumers — and they represent one of the most significant shifts in modern spending behaviour.
McKinsey’s 2025 ConsumerWise survey of nearly 26,000 consumers across 18 markets confirms the scale of the phenomenon: 79 per cent are actively trading down, yet one-third trade down in one category specifically to splurge in another. The result is a market that is hollowing out from the middle at unprecedented speed. Bain & Company reports the global luxury consumer base shrank from 400 million in 2022 to 340 million in 2025, mostly losing aspirational middle-tier buyers, while the top 0.1 per cent of luxury clients now generate 37 per cent of the entire market’s value. At the other end, United States private-label sales hit a record $271 billion in 2024. The brands trapped between these two poles are the ones in trouble.
The Barbell Economy Has a Body of Evidence Behind It
Economists now describe consumer markets as “barbell-shaped” — heavily weighted at both the value and premium extremes, with the middle rapidly thinning. Bank of America’s research confirms that high-income households now account for nearly half of all US consumer spending, up from 43 per cent in 2020. The top third of the income distribution increased spending four per cent year-over-year in late 2025, the fastest growth in four years, while lower-income consumers retrenched.
Fortune published an analysis in January 2026 declaring the US has transitioned from a K-shaped recovery into a full “Barbell Economy,” with the middle class “rapidly snapping.” The piece noted that 80 per cent of luxury-sector growth since 2019 has been driven by price increases rather than volume, while Walmart’s fastest-growing customer segment is now households earning over $100,000. That last detail, affluent shoppers flocking to a discount retailer, encapsulates the split consumer perfectly.
Gen Z exhibits the most extreme bifurcation: 88 per cent are trading down and 64 per cent are simultaneously splurging — the highest rates on both measures of any generation.
The generational data adds texture. Gen Z spending is growing twice as fast as previous generations at the same age, and a GfK/NielsenIQ/World Data Lab study projects they will add $8.9 trillion to the global economy by 2035. They are, paradoxically, the most value-conscious and the most indulgence-prone generation in the data.
Budget Brands Are Capturing the Middle Market’s Refugees
The value end of the barbell is surging across every metric. Aldi reached 11 per cent market share in the UK for the first time in March 2025 and is adding 225 new stores in the United States in 2025 alone. In the US, Aldi’s store visits jumped 8.9 per cent year-over-year in Q1 2025, far outpacing the grocery sector average of 0.9 per cent. Lidl hit a record 8.1 per cent UK market share in May 2024, growing sales 9.4 per cent as the fastest-growing bricks-and-mortar supermarket for nine consecutive months.
Private label tells the clearest story. US store-brand market share climbed to 21.2 per cent in the first half of 2025, an all-time high, and has outpaced national brands for three consecutive years. Since 2021, store-brand unit sales have risen 2.3 per cent while national-brand units declined 6.8 per cent. A Kearney–NielsenIQ report projects private label could capture 24 per cent of US dollar sales by 2030. The stickiness matters: 51 per cent of consumers say they will stick with store brands even after grocery prices drop, and 71 per cent now believe private-label quality equals or exceeds national brands.
Temu exploded to 416.5 million monthly active users globally and $70.8 billion in gross merchandise value in 2024, capturing 17 per cent of the US discount-store market. Costco’s grocery market share climbed to 8.4 per cent in 2025, nearly catching Kroger for second place. The budget end is not merely growing — it is professionalising.
Premium Brands Thrive While the Middle Collapses
At the premium end, growth remains striking even as the broader economy slows. Hermès posted €15.2 billion in revenue in 2024, up 15 per cent in constant currency, with an operating margin above 40 per cent. The brand overtook LVMH as the most valuable luxury company in April 2025. On Running’s revenue surged 29.4 per cent to CHF 2.32 billion, with net profit tripling. Lululemon crossed $10 billion in annual revenue for the first time. Prestige beauty grew 30 per cent in 2021, 15 per cent in 2022, 14 per cent in 2023, and 8 per cent in the first half of 2024, with fragrance emerging as the fastest-growing category at 12 per cent growth.
Flowers Foods reported that premium Dave’s Killer Bread and private-label bread both sold well, while mid-priced Nature’s Own struggled — the barbell economy in a single product category.
The middle market, by contrast, is in freefall. Macy’s is closing approximately 150 stores by 2026, a third of its footprint. Kering saw revenue decline 12 per cent in 2024, with Gucci — the quintessential aspirational-luxury brand positioned between true luxury and mass market — plummeting 23 per cent. Casual dining has been devastated: Red Lobster filed for Chapter 11, TGI Fridays filed for bankruptcy with its US footprint shrinking over 50 per cent in six months, and the full-service restaurant segment is 18 per cent smaller than 2019. Across all US retail, 7,100 store closures were announced in 2024, a 69 per cent jump from 2023.
The Lipstick Effect Has Evolved
Leonard Lauder’s famous “Lipstick Index” — the observation that lipstick sales rise during recessions as consumers substitute small luxuries for large ones — is alive but transformed. Traditional lipstick online transactions rose 37.1 per cent between January and May 2024. But the real action has shifted. Fragrance has become “the new lipstick,” with the global luxury perfume market growing 12 per cent year-over-year in 2024 to $23.99 billion, and premium products holding nearly 66 per cent of total market share.
Experiences represent the other major beneficiary of selective premium spending. US spending on experiences surged 65 per cent from 2019 to 2023, and an all-time record of 15.9 million Americans travelled internationally in Q1 2024. Morning Consult found that airfare and hotels had lower price sensitivity scores than the overall index throughout 2024 — consumers willingly paid full price for travel even while aggressively seeking deals on groceries. The “masstige” segment, bridging mass and prestige, grew 13 per cent in beauty in 2024, and Coach gained over 6.5 million new customers in North America in the past year.
Emerging Markets Show the Same Split
India exemplifies the bifurcation dramatically. The country’s luxury goods market reached $10 billion in 2024; luxury car sales exceeded 50,000 units for the first time; and Apple shipped a record 12 million iPhones. Simultaneously, D-Mart grew revenue by 17.68 per cent with its “Everyday Low Cost” model, and India’s unique sachet strategy—premium brands like Sensodyne and Dove offering products in five—to ten—rupee packets— enabled aspirational access for budget-constrained consumers. Rural India’s contribution to premium FMCG volumes surged from 30 per cent in 2021 to over 50 per cent in 2025.
China presents the most extreme version. Domestic luxury declined 18–20 per cent year-over-year in 2024, but budget platform Pinduoduo grew 11 per cent in Q1 2025 and budget tea chain Mixue Bingcheng expanded to 46,000 stores. At the top end, Laopu Gold’s revenue soared 167.5 per cent. Bangladesh offers a cautionary tale: with inflation hitting 11.38 per cent in November 2024 and the taka losing 43 per cent of its value since 2021, the middle class is eroding rather than bifurcating — pushed downward entirely while a small elite continues premium spending.
The Middle Is Not Coming Back
The convergence of evidence from McKinsey, Bain, BCG, Deloitte, NielsenIQ, and Kantar points to a single conclusion: the consumer middle market is experiencing structural, not cyclical, erosion. The behaviour persists even as optimism recovers—75 per cent of consumers continued to trade down through Q1 2025 despite improving sentiment. And 51 per cent say they will keep buying private label even if prices drop.
The implications are concrete. Brands positioned as “good enough for most people” face an existential challenge. The winning strategies cluster at the extremes: radical value, exemplified by Aldi’s expansion and private-label’s projected supercycle, or a justified premium, exemplified by Hermès’s 40 per cent margins and On Running’s tripled profits. The losers are the brands that defined the middle—and now find that the middle has shifted away from them.
The split consumer is not irrational. They might be the most rational consumer who has ever existed — someone who has learned exactly where their money converts into happiness and where it does not.
Sources: McKinsey State of the Consumer 2025; Bain & Company–Altagamma Luxury Market Study 2025; BCG Global Consumer Radar 2025; NielsenIQ Private Label Report 2024; Deloitte ConsumerSignals Tracker; USDA Economic Research Service; Circana/NPD Prestige Beauty Tracker; Placer.ai Retail Analytics; Fortune; CNBC.
