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.