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Why Dollar Stores Are Betting on a Recession
Dollar stores are facing a unique challenge as they plan to open 1,300 new locations despite declining profits. James Brown delves into the paradox of these stores expanding while their core customers, low-income shoppers, spend less due to inflation. As mega-chains like Walmart and Target slash prices to capture the same market, dollar stores must navigate fierce competition, including the improving delivery systems of Amazon in rural areas. Meanwhile, affluent shoppers continue to avoid dollar stores, and the industry battles rising retail theft and staffing difficulties. Brown questions whether this expansion strategy is a wise gamble on an economic downturn or a risky move that might backfire.
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James Brown delves into the intriguing dynamics of the dollar store industry, exploring the paradoxical strategy of expansion amidst financial strain. Despite reporting declining profits due to inflationary pressures and increased competition from retail giants like Walmart, Target, and Amazon, the companies behind Dollar Tree and Dollar General are planning to open 1,300 new stores. This strategy is fueled by the anticipation of an economic downturn, where historically, dollar stores have thrived as a budget-friendly option for consumers. James examines the impact of inflation on low-income shoppers, who are the primary customers of dollar stores, and how affluent consumers are steering clear of these establishments. He also discusses the challenges of hiring and retaining employees in this sector, compounded by rising retail theft. This commentary raises questions about the sustainability of this expansion and whether it could turn into a successful gamble or a risky endeavor.
Takeaways:
- Dollar stores are expanding despite decreasing profits, betting on a potential economic recession.
- Inflation is causing low-income shoppers to spend less, impacting dollar store earnings.
- Mega chains like Walmart and Target are cutting prices, increasing competition for dollar stores.
- Amazon's improved delivery in rural areas is challenging dollar stores' dominance in those regions.
- Hiring and retaining employees is difficult, and retail theft is a growing problem for dollar stores.
- The decision to open 1,300 more stores seems counterintuitive, but it's a strategic gamble.
Links referenced in this episode:
Companies mentioned in this episode:
- Dollar Tree
- Dollar General
- Walmart
- Target
- Amazon
Transcript
Dollar store dilemma.
James Brown:This is commentary from James Brown.
James Brown:We're gonna see a lot more dollar stores soon.
James Brown:That's what the company that owns Dollar Tree and Dollar general tell the Wall Street Journal.
James Brown:But here's the strange part.
James Brown:These stores are making a lot less money than they used to.
James Brown:The best dollar store customers, low income shoppers making less than 30 grandd a year, are spending a lot less due to inflation.
James Brown:At the same time, mega chains like Walmart and Target are cutting prices to attract more of these same consumers.
James Brown:And that's not counting the competition from Amazon, whose delivery is finally improving in rural areas where dollar stores dominate.
James Brown:Meanwhile, more affluent shoppers, especially those making over 100 grandd, avoiding dollar stores as much as possible.
James Brown:Oh, they tell the Journal, it's harder than ever to hire and retain employees, and retail theft is through the roof.
James Brown:Their answer to all this?
James Brown:Open more stores.
James Brown: Around: James Brown:Sounds counterintuitive, doesn't it?
James Brown:But there's a method to this madness.
James Brown:They're betting on a recession.
James Brown:Historically, dollar stores thrive when the economy tanks because there are always winners, no matter the circumstances.
James Brown:I think there are already too many of these stores.
James Brown:They're on both sides of the main thoroughfares around me, and I can't go more than five minutes without seeing one.
James Brown:The quality of their products are awful.
James Brown:And this all reminds me of something an old friend once argued.
James Brown:He said we should ban these stores from the city limits.
James Brown:I still think he's crazy, but a limit doesn't sound like such a bad idea.
James Brown:So what gives?
James Brown:Are dollar stores expanding their way to success or digging a deeper hole?
James Brown:What do you think of them?
James Brown:Are you a dollar store devotee?
James Brown:Or do you avoid them like last week's leftovers?
James Brown:Let me know in the comments and support my work at jamesbrowntv dot substec.com.
James Brown:on that note, I'm James Brown.
James Brown:And as always, be well.
