Two Consumers, One Country: Retail in the K-Shaped Economy With Thomas Paulson

On the Consumer Code podcast we look at retail through the lenses of Ethnography, Demography, and the Economy. I got to sit down with Economist Thomas Paulson to get his state of the retail economy for 2026.

I have learned so much from reading Thomas’s blog this year - and I think you will too. Here are some highlights from our conversation:

The “average customer” is a trap in 2026. The K-shaped economy is here to stay in 2026. Two consumers living in one country. One group (affluent) can keep spending; the bottom of the K is anxious and pulling back. If you build one “middle-of-the-road” strategy, you’ll miss both. In a market like this, you have to determine who (ahem… which segments) your brand creates the most value for and make sure no competitor can touch your value equation. Trader Joe’s gets this right by delivering “smart value” to affluent consumers, while Aldi wins by obsessively serving the price-first shopper.

The K-shaped economy isn’t evenly distributed - it’s geographic. In 2026, real estate decisions (format, size, capex, closures) must align to local income trajectory, not national averages. The same is true for merchandising: winning retailers will localize price ladders by trade area, because a one-size-fits-all national planogram quietly destroys margins where the local consumer no longer has the cash to spend. And for marketing, income pressure varies by market, flex savings and reassurance in stressed geographies, and quality and convenience in affluent ones, all while maintaining a consistent brand promise.

Watch for the 2026 pattern: traffic up, spend down, shoppers are hunting, not committing. Thomas noted periods where traffic can look strong while spend lags, which is a classic “deal-chasing” signature. Stores feel busy, but baskets get smaller and profitability deteriorates. Lyden’s opinion: retailers that win category repeat purchase will win in 2026.

Merchandising Matters In 2026 - Jet Was Walmart's Big Move Here. For many retailers 2026 comes with tighter cash and less available space for expansion. So they are focusing on same store sales. Thomas frames Walmart’s Jet acquisition and marketplace expansion as a Trojan horse for merchandising intelligence: they are watching what third party products are hot by geography. If sales spike - guess what product pops up in store? The marketplace sales data teaches Walmart how to localize assortments, reduce and build richer in-store mixes by geography. Do you have online sales data you could use for the same thing?

The barbell gets harsher: deep value wins, true premium wins, the middle bleeds. If you’re not cheap enough or special enough, your margins will feel pain — especially in the first half of 2026. Consumers are either chasing deals hard or paying up for something that feels truly worth it. If you’re in the “meh middle,” you need to pick a side: sharpen value perception or build real differentiation.

Influencers - 2025’s hard to measure accelerant. Influencers are one of retail’s most powerful but hardest-to-measure growth levers. Thomas points to American Eagle in 2025. The example I think of is Chili’s - who took massive market share with the 2024 cheese pull but then held onto it because people realized they had great value for the money. It is easy to ignore an influencer strategy because it is hard to measure. But if you think your product is a solid foundation you’d be foolish to ignore this trend in 2026.

Influencers - when the influencer economy backfires. Influence can flip fast when the economy tightens. Thomas uses Lululemon as a cautionary tale: as consumers turned thrifty after 2022, influencer content shifted from aspiration to “dupes” and savings, accelerating trade-down behavior. What once drove premium demand became a megaphone for substitution.

2026 has two paths, and AI is the fork in the road. Thomas sketches a “happy story” where housing turnover and hiring improve, confidence rises, and spending lifts in the second half, and a “scary story” where AI deployment triggers layoffs and demand spirals down. You can’t control that macro fork, but you can watch leading signals: watch early-career hiring trends, layoffs news, home buying as canaries. Build contingency plans now for both scenarios so you’re not improvising mid-year.

I hope this helps as you design your plans for 2026. Like this? Check out Thomas’s blog here: https://advanresearch.com/mobility-insights-blog/