A decade of slow growth delivered magnificent gains for “dollar store” stocks like Dollar Tree and Dollar General, but both are now going off a cliff. However, pundits can’t agree: Is it because high inflation is making the poor even poorer, pricing them out of even the cheapest retail option in town? Or is it because inflation is easing, so they can now head to larger big box stores where prices have been slashed to increase competition and snag more discount shoppers?
Big box stores like WalMart and Target have introduced more low-cost items to bring in more of these customers, but dollar stores have been contending with other issues as well. There were employee protests at Dollar General due to poor working conditions — an issue that was validated by millions of dollars in fines from the US Department of Labor. Dollar Tree kept contaminated applesauce on its shelves for weeks, even after the manufacturer issued a recall notice. And at Family Dollar (owned by Dollar Tree), a rat infestation struck a distribution center, and it was apparently so severe that the entire facility had to be closed down.
It’s gotten bad enough that Dollar Tree is now considering selling off the Family Dollar brand entirely. But all the dollar stores also overplayed their hand, opening too many new retail locations during their growth period that now they can’t sustain. These are expensive problems stemming from mismanagement, but the core of the issue is a simple common denominator.
Dollar General Stock, 2010-Present
Americans are struggling, going deeper into debt, and their money keeps being worth less than it was 5 years ago. Inflation and other economic woes always hit the poor the hardest. Both dollar stores and big box stores have tight margins, but larger chains have more ability to adjust their inventories with more lower-tier products as needed, helping them more or less obsolete the dollar chains in response to market pressures. And with such tight margins, any mismanagement will have a more destructive effect on the bottom line. […]
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