Dollar Store or Dior
The structural shift that will reshape business more profoundly than AI.
If you walked into a Bed Bath & Beyond in its final year, you could feel the decision not made.
The shelves were still full — technically. But the national brands were gone, replaced by unfamiliar private labels in packaging that tried too hard. The coupons, the ones customers had ritually clipped for decades, had been eliminated as part of a turnaround effort. The strategy was logical. The coupons were expensive. The margins on national brands were thin. A private-label model, properly executed, would restore profit.
What the strategy missed was what customers actually came for. Not towels. Not blenders. Not an efficient retail experience. They had been coming for the coupon ritual — the small, recurring satisfaction of getting something for less than the person beside them. Remove the coupon, and you had removed the emotional core of the relationship. Replace the national brands with private labels no one had asked for, and you had removed the functional trust as well. What remained was a large building full of products — competently made, reasonably priced, entirely resistible.
And while the company was dismantling the reasons customers came, it was also deploying capital as if financial engineering could compensate for a weakening core business. Between 2004 and 2022, Bed Bath & Beyond spent $11.8 billion on stock buybacks — not to reinvent the business, but to support the stock while sales declined and cash reserves thinned.
In April 2023, the company filed for bankruptcy.
Bed Bath & Beyond is not a cautionary tale about one retailer. It is the dead canary — a signal that the force reshaping business is not the one most companies are focused on. The boardroom conversation is about AI. But AI is downstream of a more structural shift — one that is forcing every company to answer the same question that Bed Bath & Beyond never did.
The Shape of the Economy
Kroger is the third-largest grocer in America by revenue. It operates nearly 2,800 stores across the United States. In most of the towns it serves, it is the grocery store — the place where families do their weekly shopping, where the deli counter knows the regulars, where the parking lot fills on Sunday mornings.
It is also, by almost every strategic measure, a company being stretched in two directions at once.
Its prices are 7% higher than Walmart’s and 15% higher than Costco’s — close enough to feel expensive, not close enough to feel premium. Its stores lack the treasure-hunt curation of a Trader Joe’s or the cultural signaling of an Erewhon. In the last twelve months, the company has closed 60 stores, written off three automated fulfillment centers, and lost 150 basis points of market share.
Meanwhile, the top and bottom of price are growing. Aldi is adding 800 stores. Erewhon is expanding.
This is the K-shaped economy: one market splitting into two, with each side moving according to a different logic.
The geometry is simple. One arm of the K rises; the other falls. It describes what happens when a structural shift affects different populations in opposite directions simultaneously. Not a uniform recovery. Not a shared decline. A bifurcation.
The term gained currency during COVID-19, when the divergence became impossible to ignore: by August 2021, employment among high-income workers had recovered to 118% of pre-pandemic levels. Low-income workers were still at 80.6%.
What drives it is not a single cause but three compounding structural forces, each reinforcing the others and each accelerating.
The first is asset ownership. 87% of households earning above $100,000 own stocks. Among households earning below $50,000, that figure is 28%. When markets rise — and markets have spent the last four decades mostly rising — wealth concentrates in the hands of those who already hold it. The top 1% now controls 49.9% of all U.S. equities. Meanwhile, worker compensation as a share of GDP has fallen to 75-year lows.
The second is technological polarization. Between 1980 and 2010, middle-skill employment — the jobs that required moderate training and paid moderate wages — fell by roughly ten percentage points as a share of total employment. Automation routes around the middle. High-skill jobs grew. Low-skill service jobs grew. The middle compressed.
The third is manufacturing commoditization — not just as a labor story, but as a strategy story. Beginning in the 1970s, companies dismantled vertically integrated supply chains in favor of open supplier networks, pitting suppliers against each other on price and offshoring production to wherever labor was cheapest. The immediate consequence was deindustrialization: the stable, well-paying manufacturing jobs that had anchored the American middle class vanished along with the factories. But the second consequence reshaped competition itself. Once any company could access the same suppliers, the same materials, and the same production quality by placing an order, quality stopped being a differentiator. It became a commodity. A quality product used to be a moat. Now it is the cost of entry.
The first two forces split the consumer. The third removed the simplest way companies had to respond — by just making something better than the competition.
The result is an economy in which the top ten percent of consumers now account for more than half of all spending. One in ten buyers drives one in two dollars. And the split is still widening: as of January 2026, high-income wage growth was 3.7% year-on-year, compared with 1.6% for middle-income earners, while low-income wage growth was nearly flat. For the people living on the lower arm of the K, the shift is not abstract. It shows up in postponed purchases, traded-down groceries, and a shrinking margin for error.
Jerome Powell put it plainly: companies across the economy are reporting a bifurcated consumer base — lower-income customers are buying less and trading down, while spending at the top remains resilient. When the Fed Chair is describing your market structure, it is no longer a forecast.
You might expect a new technology to disrupt this dynamic — to flatten the K by redistributing the advantages that built it. AI is the obvious candidate.
It will not do that.
Nicolas Colin’s late-cycle investment theory explains why. AI is not the start of a new paradigm. It is an efficiency breakthrough within the current one. Like Toyota’s lean production in the 1970s — which showed how to produce higher-quality goods at lower cost without reinventing the car — AI reorganizes production around already-mature computing and network infrastructure. It achieves more with less. Clayton Christensen would call it efficiency innovation: better use of existing tools, liberating capital while displacing labor. Previous efficiency breakthroughs — containerization, lean manufacturing, the early internet — each widened the structural advantages of scale players before they eventually created new markets. AI is following the same script, faster.
For infrastructure players — the Amazons, Syscos, Visas — AI is pure structural advantage. It widens their cost structure lead. They automate more, reduce more, operate leaner. The machine gets faster.
For everyone else: AI accelerates copying. Design cycles that took months now take weeks. Product iterations that required engineering teams now require prompts. Functional value — already cheap to replicate — gets cheaper still.
The K is not a temporary distortion that economies eventually recover from. It is the shape of the economy now. AI is going to entrench it. The forces that split the market are getting a major software upgrade.
Chart: Earnings call transcripts that include "K-shaped" references
Dollar Store or Dior
In a K-shaped economy, two viable positions remain. Compete on price. Or earn a premium. Dollar Store or Dior.
Both are rational strategies. Both can work. The middle cannot.
This is not a moral argument for abandoning the middle or the households under the most pressure. It is a strategic argument about the market conditions businesses now face. What is disappearing is not just a business position. It is the economic center of gravity that once made that position durable.
What happens to companies that cling to the middle is legible in the bankruptcy filings of the last decade. Bed Bath & Beyond. Party City. Pier 1 Imports. Talbots. The Container Store. Red Lobster. Boston Market. Rite Aid. The Body Shop. Sizzler. GNC. The pattern is consistent: a company without the scale to win on cost and without the differentiation to command a premium gets squeezed from both directions until the margin disappears.
Competing on price requires a machine most companies will never be able to afford to build: vertically integrated supply chains, logistics networks of real scale, algorithmic pricing, and the operational sophistication to take cost out of the system at every step. I saw this firsthand in a distribution conversation with PepsiCo. An executive mentioned, almost casually, that the company could put a product in virtually every storefront in America within days — simply by adding pallets to trucks already on the road. That is what low-end advantage actually looks like. Not a pricing decision. An infrastructure asset built through decades of capital allocation. PepsiCo is not a food and beverage company. It is a distribution infrastructure company that extracts a toll from the system it already paid to build.
That is the brutality of the bottom end. Scale wins, because it is expensive to sell cheap products. The economics only work if you already own the machine. Kroger is learning this in real time. Its $24.6 billion attempt to acquire Albertsons — to buy the machine through merger — was blocked in 2024. Unable to acquire that infrastructure, new leadership is now restructuring the company around aggressive price competition, betting that 2,800 stores provide enough scale to move closer to the low-price end of the market. At the same time, Kroger has committed $7.5 billion to stock buybacks. The pattern should look familiar by now. Whether Kroger is making a disciplined bet or repeating Bed Bath & Beyond’s capital-allocation mistake is the test case of the next five years.
Most companies without that scale end up shut down, acquired, or margin-extracted by the infrastructure players that have it.
For the majority of businesses, the low-cost position is structurally closed, which means the real question is not which direction to go. It is how far up the market to climb — and how fast.
Moving toward the premium end does not necessarily mean raising prices, though it can. It means improving the quality of revenue itself — specifically, building a business where customers return without incentive, pay full price without negotiation, and resist competitive substitution without prompting. That is what premium revenue actually looks like: durable, predictable, and structurally insulated from the pricing pressure that squeezes the middle.
Chart 1: Retailers that moved upmarket outperformed the S&P 500.
The shift is visible across industries. And it does not always express itself through higher prices. Most companies will never access the low-cost position. But that does not mean the only alternative is a luxury price point. The more instructive path is companies that charge modest prices but generate premium economics by deepening the relationship rather than cutting the cost. Costco charges less than nearly every competitor and still generates $5.3 billion in membership revenue with a 92% renewal rate. Trader Joe’s sells bananas for 19 cents and produces roughly $2,100 in revenue per square foot — nearly four times Walmart’s. IKEA has built a $44.6 billion retail business by deliberately lowering prices while 915 million people visit its stores annually. None of them own the distribution infrastructure that makes the true low-cost position viable. What they own instead is a relationship strong enough that customers opt in, pay to belong, and return without being bribed. The membership fee is not a pricing mechanism. It is loyalty made structural — converted from a feeling into a contractual commitment.
Delta arrived at the same economics from the opposite direction. It rebuilt its product around the premium traveler — redesigned cabins, dedicated lounges, a loyalty architecture that rewards relationship over transaction. Premium-cabin revenue rose 9% while main-cabin fell 7%, and roughly 60% of its revenue now flows from premium products and loyalty. Disney has raised park prices twice as fast as inflation while layering in premium experiences that did not exist five years ago. Zara, watching Shein commoditize fast fashion below it, has spent years moving upmarket through fewer stores, higher prices, and less discounting.
Different industries, different price strategies, same underlying conclusion: the premium end of the market is becoming the strategic center of gravity. Not because households under pressure matter less, but because this is where companies actually have a chance to compete.
Scatterplot: Companies in the structural middle have lost more value than those at either pole.
But when every competitor moves upmarket, they converge on the same finite customer. Winning requires more than a quality product and higher price point. It requires a reason to be chosen over the thirty other companies also claiming premium positioning. When the customer is choosing among competitors who have all solved for quality, the differentiating variables become story, identity, experience, and cultural authority. That means competing not just in the commercial market, but in the capital and cultural markets simultaneously. (I explored this framework in The Three-Market Theory of Value Creation.) Brand becomes core IP. Design becomes competitive infrastructure. The creative capabilities a business has built — or failed to build — become the constraint on how far up the stack it can climb.
The question is what that climb is actually made of.
The Value Stack
In 2018, a company called Quince recognized something that should terrify luxury brands: the same factories that manufacture luxury goods will take other orders. Place a large enough purchase order, and you can get something very close to the product itself. No licensing deal required.
Quince placed those orders and sells the results at cost-plus. No logo. No marketing. No retail markup. A cashmere sweater for $50. A leather jacket for $200. The object, stripped to its functional essence and priced accordingly. As of March 2026, after a recent $500M funding round, the company was valued at $10 billion.
Quince is the logical endpoint of manufacturing commoditization: quality itself has become available to anyone willing to place the order. Any sufficiently motivated buyer with a spreadsheet can now source comparable quality. In the classic competitive frame, that should pose an existential threat to luxury brands.
But it doesn’t.
Hermès understood this long before Quince existed. Its commitment to quality is genuine, but quality was never the destination. It was the foundation. What Hermès built on top of it is something else entirely.
Start with craftsmanship — not just the quality itself, but the ethos and process that produce it. A Birkin or Kelly can take up to 18 hours to complete, made by a single artisan from start to finish. New craftspeople train for years before they touch a bag. Hermès does not simply practice this discipline. It narrates it — obsessively, romantically, in loving detail. The point is not just that the object is well made. It is that the object feels human-made in a way mass production cannot replicate. You do not merely buy the bag. You acquire a relationship to the hands that made it. That feeling — private, sensory, independent of any audience — lifts the object beyond function. And crucially, it is reinforced not only in the workshop, but in the storytelling of the workshop.
Then there is heritage. Hermès began in 1837 as a harness maker for European nobility. That origin is not just a fact. It is a pillar of the brand’s perceived value. Every equestrian motif, every invocation of the atelier, every gesture toward generational savoir-faire connects the present object to a lineage of excellence older than the customer and older than the modern luxury market itself. Heritage does not merely signal quality. It signals permanence. To own the object is to place yourself inside a story that was already underway before you arrived.
Then there is scarcity — carefully constructed, precisely maintained. Production grows only modestly each year, not because Hermès cannot scale, but because scale would dissolve the desire scarcity creates. There are roughly three hundred Hermès stores in the world. Gucci has more than five hundred. And even if you walk into one, you still cannot simply buy a Birkin. You have to earn access — through a relationship with a sales associate, through prior purchases, through demonstrated commitment to the house. Hermès controls not only the object, but the terms of entry. The person carrying a Birkin did not just spend money. They were chosen. That signal — social, external, legible to those who know — is a form of value entirely separate from the leather itself.
Quince proves quality can be copied; Hermès proves value cannot.
What Hermès built is a value stack: a layered architecture of perceived value in which each layer compounds the one beneath it, and none can be reduced to the product itself. The stack has five layers, each harder to build and harder to copy than the one below it.
Functional value is what the product does: the problem it solves, the task it completes, its classical use value. This is the wedge layer — the one every competitor will eventually access through the same factory, the same supplier network, or simple reverse engineering. It is the most visible layer, and the most fragile.
Emotional value is how the product makes you feel privately, without an audience. The ritual of a pour-over coffee. The satisfying weight of a well-made tool in the hand. This value is intrinsic to the user and independent of anyone else’s perception. In their 1991 study of consumption values, Jagdish Sheth, Bruce Newman, and Barbara Gross found emotional value to be one of the strongest predictors of purchase decisions. It is also the layer companies have most often tried to create through branding alone, hoping feeling could compensate for product parity.
Social value is what the product signals to others. It depends on audience and context. A Patagonia vest signals environmental commitment in one room and something else entirely in another. The value is not in the object itself, but in how it is read.
Symbolic value is what Jean Baudrillard called sign value: worth derived not from use, but from position within a shared language of objects. Symbolic value is borrowed meaning. Rolex did not invent the cultural code of status; it occupies and reinforces it. This is what distinguishes symbolic value from social value. A fake Rolex may fool people who do not know. But among collectors and insiders — the community that actually defines what Rolex means — it is worthless. Symbolic value depends on recognition by the people who govern the code.
If symbolic value operates within a cultural code, cultural value authors one.
An institution with genuine cultural value does not merely participate in the conversation about what matters in its category. It sets the terms. Tastemakers defer to it. Critics use it as a reference point. Other brands seek legitimacy through proximity to it. Pierre Bourdieu described this as cultural capital: the authority, earned over time, to define what counts as taste in a given field. My co-host Ana Andjelic sharpens the strategic distinction: a status brand signals where you stand in an existing hierarchy; a culture brand defines which hierarchy matters. One borrows the order. The other writes it. Hermès does not participate in the conversation about what luxury means. It is the conversation.
That is cultural value — the highest layer in the stack, the hardest to build, and the hardest to replicate once built.
And it does not take 187 years. Formula 1 went from a niche European motorsport with a shrinking audience to one of the defining codes of global elite sports culture. Corteiz did it in five years from a West London bedroom, so decisively that Nike moved from suing the brand to collaborating with it. JJJJound built it over a decade with almost no product at all — just a curatorial eye so consistent that New Balance, A.P.C., and Porsche seek out collaborations not for the reach, but for the credibility his selection confers on them.
None of these brands built cultural value through advertising scale or distribution muscle. Each authored a meaning system — a definition of what taste looks like in its category — that competitors, critics, and tastemakers eventually deferred to. Cultural value cannot be bought or copied. But it can be built far faster than Hermès’s timeline implies — by any business willing to do the authoring.
Each layer added to the stack makes imitation exponentially harder. A competitor can replicate your product and undercut your price. It’s much harder to replicate your emotional resonance, your community’s shared belief, your cultural grammar, and your institution’s earned authority. The compound cost of replication across multiple layers becomes prohibitive. The value stack is your moat at the premium end of the K-curve.
The stack applies far beyond luxury. Yeti turned functional insulated drinkware and coolers into a broader identity system around outdoor competence, taste, and rugged discernment. Arc’teryx began as technical climbing gear — pure functional value — and climbed the stack so successfully that it now operates as a status signal in cities far removed from the mountain. Letterboxd took the functional act of logging movies and turned it into a cultural platform that shapes how films are discussed and discovered.
Then there is Buc-ee’s, a gas station chain in Texas. It has no business being in this conversation — except that it built emotional and cultural value in a category where the baseline expectation is fluorescent lighting and a microwave. The stores are 50,000 square feet, obsessively clean, stocked with a curated wall of house-smoked jerky and branded merchandise that customers wear without irony. People drive hours out of their way to visit. That is not convenience. That is pilgrimage — built in a category where no one thought pilgrimage was possible.
But before a company can build a value stack, it has to understand its value structure. Most companies don’t — and that gap is where the real damage happens.
Closing
Bed Bath & Beyond knew its cost structure in extraordinary detail: SKU counts, inventory turns, gross margin by category, coupon redemption rates. It understood the economics of the business. What it never built was an equally rigorous understanding of the value it was actually creating for customers, and which parts of that value were bringing them back. There was no map of the emotional logic, the trust, the ritual, the meaning layered into the experience. Only a functional retail operation, reasonably priced, competing in a market that increasingly had little use for “reasonably priced.”
The final strategy was coherent as a cost intervention: replace national brands with private label, eliminate the coupon expense, improve margins. It was catastrophic as a value intervention. The company stripped away the very layers of value that made the business matter. It could not see what it was destroying because it had never learned to see what it had built.
That is no longer Bed Bath & Beyond’s problem alone. It is the defining strategic problem of the K-shaped economy.
Most businesses are fluent in cost structure. They know their fixed costs, variable costs, margins, and operating leverage. But their value structure is the often-ignored counterpart: the engineered composition of value a business creates across five layers — functional, emotional, social, symbolic, and cultural — and the degree to which each layer contributes to customer acquisition, retention, willingness to pay, and pricing power. Most companies cannot describe that architecture with any precision. They know exactly what they spend. They are far less clear on what value they are actually producing — and less clear still on which forms of value their investments are compounding.
So here is the question: can you name your value structure? Not your cost structure. You already know that. Can you say, with precision, what kinds of value your business actually creates, which of those values customers are truly paying for, and which your current strategy is compounding or quietly eroding? Or are you still investing in a functional layer that any competitor can replicate by placing an order?
If you cannot answer that, you are closer to Bed Bath & Beyond than you think: still open, still generating revenue, and unable to see the thing being taken from you because you never learned to see it as yours.
If you’d like to hear these ideas worked through in real time, Ana Andjelic and I unpack them on Hitmakers. It is a bi-weekly podcast decoding cultural market moves and the conversion of cultural capital into financial capital.
Hi Leland,
Great article. This post compliments your ideas on the K-Shaped economy: https://readfoundobject.substack.com/p/they-killed-normal-and-called-it
I have a question: where does serious thinking about culture and its impact on business happen, beyond your podcast with Ana Andjelic and her Substack? In my experience, ad agencies rarely ask these questions, and management consultants focus on the consumers market. Yet these conversations create real value for businesses.