Dollar stores are among the first to see trouble ahead from inflation in dollar prices. The Financial Times reports:
Dollar stores have spread rapidly across the US since the Great Recession, pulling in cash-strapped consumers with their 21st-century twist on the “five and dime” model Woolworth popularised a century earlier.
Dollar General now operates almost 17,800 stores and Dollar Tree has more than 15,900, compared with Walmart’s 4,740 larger US outlets.
Close to 2,000 new dollar stores are expected to open this year, according to Coresight Research. That represents almost half of planned US retail openings and bucks the trend in a sector shaken by Amazon, Covid-19 and emptying shopping malls.
This pace of growth has lifted the combined market capitalisation of Dollar General and Dollar Tree, the two biggest chains, to $75bn.
But it has coincided with a period of tame inflation, making it easier to make 30 per cent-plus gross margins on products selling for as little as $1.
Those conditions have changed abruptly, with consumer prices posting their biggest one-year jump for 13 years in July as all retailers struggled with shipping bottlenecks and staff shortages.
Inflation poses a particular dilemma for stores charging $1 for their merchandise. “It’s a real challenge when you have to be the two-dollar store,” said John Strong, a professor at the College of William & Mary’s business school.
In earnings announcements last week, Dollar General and Dollar Tree blamed rising shipping costs and wage bills for weighing on margins. Both companies’ earnings outlooks disappointed investors.
Dollar General, which sells most items for under $5, has raised some prices in response. But Todd Vasos, chief executive, acknowledged that its core customer “can ill-afford very many price increases.”
That has raised questions about whether dollar stores can keep finding the affordable products, and the staff, to meet their aggressive growth goals.
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