Charlie Munger had a theory about where American shopping was headed, and he wanted to test it. So more than a decade ago, the legendary Berkshire Hathaway (BRK.A) vice chairman did what any curious billionaire investor would do: he cold-called a guy in Dallas who owned one of the fanciest shopping centers in America.

When Charlie Munger Calls, You Answer

Ray Washburne, a businessman and former Trump advisor, initially thought someone was messing with him when his office received the call. But it was really Munger, Warren Buffett's longtime partner, asking to visit Highland Park Village, the prestigious luxury shopping destination that Washburne and his family had acquired in 2009.

Munger showed up the following Tuesday with a small team in tow. According to Washburne, who recounted the story on the Intersections Podcast last month, the famed investor toured the property with intense curiosity and peppered him with questions about the luxury retail business.

"He just absolutely bled me for everything I knew about luxury retail," Washburne said. Over lunch, Munger explained his mission. As Costco's (COST) largest shareholder, he understood the discount end of the market cold. Now he needed to understand the opposite extreme.

Then came the prediction that would prove eerily accurate.

The Two-Economy Thesis

"He goes, 'I think they're going to be two economies. The high high-end luxury, which you are, and the low low end, which Costco is, and there will be nothing in between,'" Washburne recalled.

At the time, this sounded pretty radical. Gap (GAP) stores were everywhere, filling malls across suburban America. Mid-market retail chains seemed like permanent fixtures of the shopping landscape. The idea that the entire middle tier would just vanish seemed extreme.

Washburne also learned that Munger was methodically visiting the five or six top luxury shopping centers around the country to study the segment firsthand. Classic Munger — do the homework, understand both sides of the equation, then make your call.

Munger Was Right

Fast forward to today, and Munger's forecast has played out with remarkable precision. "Since then, brands like the Gap, which used to have a store in every mall in the city, are down to like two stores … we're just doing spectacular," Washburne noted.

Traditional shopping malls have either shuttered entirely or operate half-empty, their anchor stores long gone. Meanwhile, luxury destinations like Highland Park Village and Bal Harbour are thriving. And discount powerhouses like Costco continue their relentless expansion.

The retail landscape has indeed bifurcated into exactly the two-tiered system Munger predicted. Either you're shopping at ultra-premium locations or you're pushing an oversized cart through a warehouse club. The middle ground has largely collapsed.

Recent earnings data illustrates this split. In November, Gap reported quarterly earnings of 62 cents per share, topping analyst expectations of 59 cents, with revenue of $3.94 billion slightly above the $3.91 billion consensus. But the company's footprint has shrunk dramatically from its mall-everywhere heyday.

Costco, meanwhile, delivered fourth-quarter revenue of $86.16 billion in September, edging past analyst expectations of $86.12 billion. The retailer also posted adjusted earnings of $5.87 per share, beating forecasts of $5.80 per share.

Munger's Legacy at Berkshire

Charlie Munger passed away in November 2023 at age 99, just weeks before his 100th birthday. Last year marked Berkshire Hathaway's first annual meeting without him — a reminder of how much his perspective shaped the company.

Munger worked alongside Buffett starting in 1959 and fundamentally redirected Berkshire's investment philosophy. Before Munger, Buffett was hunting for "cigar-butt" deals — buying struggling companies simply because they were cheap enough. Munger convinced him to shift strategy entirely: forget the dying companies, and instead focus on buying excellent businesses at fair prices.

That insight transformed Berkshire from a struggling textile mill into one of the most successful investment vehicles in history.

Beyond Berkshire, Munger served on the boards of Daily Journal Corp. and Costco, building a reputation for brutally honest commentary on markets, human behavior and his favorite punching bag, cryptocurrencies. His willingness to study retail from both the luxury and discount angles — traveling the country to see shopping centers firsthand — exemplified his approach to understanding investments deeply before placing bets.

His retail prediction from that Dallas lunch meeting stands as yet another example of Munger seeing around corners that most investors didn't even know existed. He called the great retail divide before the evidence showed up in quarterly reports and empty mall parking lots. And as Washburne can attest, he was exactly right.