A lot of people agree with Pearson. Dollar stores such as Dollar Tree and its rival Dollar General (which, between them, control more than 60 percent of the market, according to market researcher IBISWorld) are one of the more surprising retail success stories of the past several years. Widely expected to encounter head winds as the economy picked up after the depths of the Great Recession, they are instead booming. The number of dollar stores in the United States has increased from about 20,000 to 30,000 outlets between 2011 and 2018.
What makes this particularly noteworthy is that this growth is occurring in an economy that’s growing. Unemployment is low. Household incomes are finally beginning to move up. Yet many people still feel so under pressure they are turning to dollar stores to stretch their household finances. As it turned out, there are few businesses that understood our age of inequality better than the dollar store industry. In a country where almost 40 percent say they cannot come up with $400 in an emergency, where people appeal on GoFundMe for help paying everything from medical bills to the rent, it should be little surprise that there’s a major customer base for stores that promise the lowest of low prices. Todd Vasos, the chief executive of Dollar General, explained the industry’s success last year: “The economy is continuing to create more of our core customer.”
Yet, a report released this month by the Institute for Local Self-Reliance argues that while these low-cost businesses claim to help their customers, they are doing the opposite. By opening up — for the most part — in low-income neighborhoods, they drive locally owned options out of business, including grocery stores. But the dollar stores rarely carry anything in the way of fresh fruit and vegetables, opting instead for canned, frozen or processed foods. Their lean business model means they employ fewer people than more conventional retailers. (That’s why many dollar stores are such a mess — there are fewer employees tidying up after the customers.) Finally, dollar store customers are shopping there for the perceived bargain price, but the merchandise might not be as cheap as it initially appears. Often the low prices are maintained by shrinking the package size, resulting in less bang for the buck. At the Dollar Tree where I met Pearson, the tin foil is $1.00 for a 15 square feet package. Walmart sells 75 square feet for $4.06 -- more than 18 square feet per dollar.
In other words, this is stuff purchased by people who need to stretch their money to make it last to the next paycheck or government benefit remittance, people who often can’t afford to look for the best bargain out there. Many are too poor to shop at Walmart. The typical Walmart customer resides in a home where the annual income is slightly more than $50,000. Market research consultant Kantar Retail reports that more than a third of customers at Dollar Tree and Dollar General earn $25,000 or less annually. More than 40 percent of people living in households where the annual income is $29,000 or less shop at a dollar store at least occasionally, according to Nielsen.
This is no accident. In a reverse form of business triage, dollar stores open up in neighborhoods and towns where the numbers say things are not going well economically. While their growth is highest in rural areas, they are also popping in suburban and inner-city neighborhoods. Last year, Quartz reported 3 out of 4 Americans live within a five mile radius of a Dollar Tree. More Americans do their grocery shopping at a dollar store than a Whole Foods.
The growing economy is helping families but not helping them enough. Earlier this year, a Morgan Stanley analyst described this as a “Goldilocks scenario” for the dollar store industry. “Low end consumer health continues to improve, increasing spending power of the Dollar Stores’ core customer, while likely not improving so much as to cause significant trade-up out of the Dollar Store channel.”
In fact, it could be argued dollar stores are in a win-win scenario vis-a-vis the economy. In what now passes for a good economy, many people are still too poor to comfortably shop at traditional bargain stores such as Walmart. If a recession hits, the dollar store industry will benefit from the many people who decide to trade down.
it seems likely the thing that would most slow the growth of these low cost stores is something we don’t currently enjoy — an economy that’s truly lifting all boats in a meaningful way. But, then again, never underestimate the lure of a good bargain. As I exit my local Dollar Tree, I take Pearson’s advice and pick up an extra pack of holiday cards. It’s $1 for 20 gingerbread house decorated missives, $1.09 if you count tax. Who could resist that?