"One-dollar store" collapses, American low-income consumers "run out of money"

With the successive collapse of the two major "dollar stores", the bottom-tier consumption in the United States has completely plunged into a downturn.

Dollar Tree slashed its full-year profit guidance by 20% on Wednesday, indicating "enormous pressure" on the middle and low-income customer base. Following the announcement, Dollar Tree's stock price plummeted by 20% on the same day.

Similarly, Dollar General's second-quarter performance fell short of expectations across the board, leading to a significant downward revision of its full-year performance guidance, causing its stock price to plummet by 30% last Thursday, marking the largest single-day drop in history.

In recent years, the wealth gap in the United States has been widening, the middle class has been shrinking, and the number of impoverished people has been growing. Dollar General and Dollar Tree have seized this opportunity to become the fastest-growing retail discount stores in the United States, with their stock prices soaring.

The prevailing view is that "dollar stores" attract more budget-conscious consumers through discounts, thus being able to survive economic difficulties. However, this theory is now collapsing.

In an era of high inflation and high interest rates created by the Federal Reserve, the financial stress of ordinary Americans is greatly underestimated, especially with the bottom-tier consumers having their wallets emptied, struggling even to afford basic necessities.

Coupled with the reckless expansion of "dollar stores" in the past, the increasingly fierce "price war" from Walmart and other chain stores, the collapse of the performance of "dollar stores" is only a matter of time.

Intensifying Wealth Gap

As one of the countries with the most severe wealth gap globally, the United States continues to set new records in wealth inequality.

Michael Hartnett, Chief Investment Strategist at Bank of America, linked wealth inequality to market performance in the latest Flow Show report:

For example, the stock price of the symbol of the rich, Ferrari, hit a historic high, while the stock price of the symbol of the poor, Dollar General, fell to its lowest level in six years.

The market value of the "Big Seven" leading the U.S. stock market has reached an unprecedented level of $15 trillion, while the market value of approximately 4846 companies in the MSCI Developed Markets Small Cap Index is only $18 trillion.

Hartnett believes that the Federal Reserve is the main culprit behind the polarization of wealth in the United States. During this round of rate hikes, housing, food, and stock prices have hit historic highs and continue to soar, combined with a weak labor market, and the foreign exchange market is pricing in a "50 basis point rate cut."

Low-income Groups Struggling, Retail Discounters Affected

As frontline consumer outlets, Dollar General and Dollar Tree have deeply felt the impact of high inflation and high interest rates on the lower-income population in the United States Dollar General stated last week that rising prices, a weak job market, and increasing interest rates are putting pressure on low-income customers. With over 20,000 stores mainly located in rural towns, the company generates over 60% of its sales from households with annual incomes below $35,000.

CEO Todd Vasos mentioned during an analyst conference call that over 60% of customers have reported having to make sacrifices in purchasing essential items due to price increases. Consumers are also facing higher costs in rent, utilities, healthcare, and other expenses.

Dollar Tree has also received similar feedback. With over 8,000 stores primarily in suburban markets catering to middle-income consumers.

COO Mike Creedon stated on Wednesday:

"We are starting to see inflation, interest rates, and other macro pressures having a more pronounced impact on customer purchasing behavior."

Due to sluggish sales, retailers are forced to collectively lower prices and clear inventory.

Former senior executive David D'Arezzo of Dollar General and other retailers told CNN:

"They are trying to get rid of failed non-consumable strategies with a large amount of inventory. They overlooked the fact that consumers seek consumables in difficult times."

Furthermore, the plight of American "dollar stores" is not without the contribution of Walmart.

Walmart, Target, and other retail giants have also implemented price reduction promotions to attract inflation-affected shoppers, thereby reducing the frequency of consumers visiting "dollar stores."

Vasos admitted last week that Walmart has been "doing quite well" in attracting price-sensitive consumers.

Meanwhile, Dollar Tree is still far from escaping the immense pressure brought by the acquisition of Family Dollar. Earlier this year, Dollar Tree announced the closure of over 900 Family Dollar stores and is in the process of divesting or selling the company