Make us your home page

Today’s top headlines delivered to you daily.

(View our Privacy Policy)

When dollar stores are too expensive

When he was Fed chairman and had access to the best economic data and minds on the globe, Alan Greenspan famously liked to forecast the direction of the economy by studying sales of men's underwear. Even during the best of times, underwear purchases remain pretty flat, he noted. (What dude who has just gotten a raise thinks: "Ah yes! I'll upgrade my entire collection of briefs now!") Only during the worst of times — when people are really, really cutting back — do boxer and brief purchases drop off.

The reverse logic usually holds for America's dollar stores. Customers flock to the chains, which sell thousands of products for a buck or $2 or $10, when times get tough. When the economy improves, they shop at nicer outlets, like Target. But there are some worrisome signs that the prolonged economic malaise has changed even this retail paradigm. Middle-class households remain reluctant to spend. And cash-strapped consumers are finding even dollar stores a bit too expensive.

To be fair, Dollar Tree, Dollar General and Family Dollar, the three big national chains, all posted strong profits in the first quarter of the year, the last for which data is available. That is not just because they are opening new stores but also because same-store sales have continued to grow as more and more customers trade down.

Nevertheless, all three reported ominous data in the past few weeks. The Wall Street Journal noted that two of the three missed earnings targets. And the companies' investor notes report that customers are buying fewer discretionary items, like hand lotion and decorative goods, and more "consumables" and household items, like toilet paper.

In short, families are shopping more at dollar stores. But they are buying only what they need. They are picking up low-margin goods, cheaper per unit at dollar stores than places like Walmart, and sold in smaller packages to let customers spread purchases out.

The story gets worse the more you dig into the reports. Dollar Tree, for instance, said that it saw its gross profits thinning, "a result of the impact of stronger sales of lower-margin consumables, increased promotional markdowns, and higher freight expense." In an earnings call, as reported by the Journal, CEO Rick Dreiling explained that the stores let margins drop because they did not feel comfortable passing price increases onto consumers.

"We have 228 items that are priced at $1 that we think are incredibly important to our customers that we elected not to take price increases on," he said. "This sounds almost silly, but a $1 item going to $1.15 in our channel is a major change for our customer."

Chalk it up as one more sign of weakness in consumer spending. Walmart visits are down 3 percent, with some customers complaining that prices are too high there. Last week, the Commerce Department announced that, even though personal income ticked up in June, overall consumer spending declined.

The backdrop is the persistent, perhaps worsening, economic malaise, combined with rising food and gas prices. According to the outplacement firm Challenger, Gray, and Christmas, last month saw a "sudden and unexpected burst" in downsizing.

Some economic prognosticators now see a double-dip on the horizon — a possibility considered so slim as to be unmentionable just a few months ago. "The indicators suggest that the economy has at least a one in three chance of falling back into recession if nothing new is done to raise demand and spur growth," Larry Summers, the former Harvard president, Treasury secretary and Obama economic adviser wrote last week.

PIMCO's Bill Gross thinks the odds are worse. We are at the "tipping point" of recession, he told Bloomberg.

As for underwear sales? Well, the market research company NPD says they were up 14 percent for the three months ending in February. No word on how they have fared since then.

When dollar stores are too expensive 08/06/11 [Last modified: Saturday, August 6, 2011 4:31am]
Photo reprints | Article reprints

© 2017 Tampa Bay Times


Join the discussion: Click to view comments, add yours

  1. In advertising, marketing diversity needs a boost in Tampa Bay, nationally


    TAMPA — Trimeka Benjamin was focused on a career in broadcast journalism when she entered Bethune-Cookman University.

    From left, Swim Digital marketing owner Trimeka Benjamin discusses the broad lack of diversity in advertising and marketing with 22 Squared copywriter Luke Sokolewicz, University of Tampa advertising/PR professor Jennifer Whelihan, Rumbo creative director George Zwierko and Nancy Vaughn of the White Book Agency. The group recently met at The Bunker in Ybor City.
  2. Kushner to testify before two intelligence committees


    WASHINGTON— President Donald Trump's senior adviser and son-in-law Jared Kushner is set to make a second appearance on Capitol Hill — he will speak with the House Intelligence Committee on Tuesday, one day after he is scheduled to speak with Senate Intelligence Committee investigators behind closed doors.

    White House senior adviser Jared Kushner is scheduled to testify before the Senate Intelligence Committee and the House Intelligence Committee. [Associated Press]
  3. Rays blow lead in ninth, lose in 10 to Rangers (w/video)

    The Heater

    ST. PETERSBURG — Rays manager Kevin Cash liked the way Alex Cobb was competing Friday night. He liked the way the hard contact made by the Rangers batters went away after the second or third inning. So as the game headed toward the ninth, there was no doubt in Cash's mind that sending Cobb back to the mound was …

    Rays starter Alex Cobb can hardly believe what just happened as he leaves the game in the ninth after allowing a leadoff double then a tying two-run homer to the Rangers’ Shin-Soo Choo.
  4. Exhumation of Dalí's remains finds his mustache still intact


    FIGUERES, Spain — Forensic experts in Spain have removed hair, nails and two long bones from Salvador Dalí's embalmed remains to aid a court-ordered paternity test that may enable a woman who says she is the surrealist artist's daughter to claim part of Dalí's vast estate.

    Salvador Dal? died in 1989 leaving vast estate.
  5. Sessions discussed Trump campaign-related matters with Russian ambassador, U.S. intelligence intercepts show


    WASHINGTON — Russia's ambassador to Washington told his superiors in Moscow that he discussed campaign-related matters, including policy issues important to Moscow, with Jeff Sessions during the 2016 presidential race, contrary to public assertions by the embattled attorney general, current and former U.S. …

    Attorney General Jeff Sessions recused himself from the Russia investigation after meetings with an ambassador were revealed.