Dollar stores thrive in distressed pockets of America
As rural America gets left behind by the rise of coastal superstar cities and the chasm between the richest and the rest widens, one entity is heavily profiting from the blight: the dollar store.
Why it matters: Economic signs point to a coming recession, and U.S. discount stores, which have boomed even in the strong recent economy, will only grow more — becoming the sole retail option for an increasing share of Americans.
The big picture: The face of retail is changing. The rise of dollar stores goes hand in hand with the decline of American malls, says Yaromir Steiner, a mall pioneer in Columbus, Ohio.
- In the early 1960s, the bottom 90% of American households by income had the same wealth as the top 1% — 33% of the total. Today the bottom 90% has dropped to only 20% of the wealth, while the top 1% has raised its share to 40%, according to a paper by Edward Wolff, an economics professor at New York University.
- As the wealthy get wealthier and the middle class erodes, the retail industry is witnessing the simultaneous rise of cheap chains like Dollar General and luxury brands like Louis Vuitton.
- Stores that target middle-income Americans, like J.C. Penney and Macy's, have been rapidly losing customers. And dollar stores are picking them up.
"This is a climate in which the dollar stores have been able to multiply like a virus."— Stacy Mitchell of the Institute for Local Self-Reliance
Today, there are more than 30,000 dollar stores in the U.S., up from around 18,000 a decade ago, according to the Institute for Local Self-Reliance.
- That's more locations than the combined number of Walmart, Kroger, Costco, Home Depot, CVS and Walgreens — the country's six biggest brick-and-mortar retailers, reports Forbes.
- And the big dollar chains — Dollar General and Dollar Tree, which also owns Family Dollar — say they are adding about 1,000 more locations each year.
- The expected coming recession could mean even greater expansion: "During the last recession, [dollar stores] experienced tremendous growth and success in the market as they displaced other low-price competitors, such as Walmart, and successfully took share from them," says Herb Kleinberger, a retail professor at NYU.
Investors love the dollar chains because, even among budget retailers, their stock prices are rising.
- Over the last five years, Dollar General's share price has soared about 66%. Dollar Tree has surged 50%.
- Dollar General CEO Todd Vasos told WSJ: "The economy is continuing to create more of our core customer" — struggling Americans.
Dollar joints have set up in places lacking grocery stores, from rural Kansas to inner-city Chicago, where even Walmart isn't around. They sell more than high-end stores, too — dollar stores had sold about $24 billion worth of groceries as of the third quarter of the year, while Whole Foods had rung up $15 billion.
- Among victims: Smaller retailers that are unable to compete with the dollar stores' rock-bottom prices. When they are forced out of business, local residents are left with just one choice for shopping.
The stakes: Those who rely on dollar stores for food are exposed to overwhelmingly unhealthy diets, with choices that rarely go beyond processed and packaged snacks. At a Dollar Tree in Alexandria, Virginia on Tuesday afternoon, I saw that the shelves were stocked with Cheese Nips and Fudge Stripes, and that sodas were the only items in the refrigerators.
- Still, there's one irrefutable reason to go discount, Shirley Jones, a shopper at the Dollar Tree, tells me: "Save money."
- Kristen Henderson, who was shopping for snacks and dish soap, says she knows certain products are 88 cents at Walmart and a dollar at the Dollar Tree, but that she goes here anyway because "Walmart isn't convenient to get to from where I am."
- "If you live in Whole Foods-land — not the dollar store world — it's an invisible reality that they're supplying a lot of the groceries," Mitchell says.