💰 If I Had a Dollar …
What the rise of dollar stores tells us about inequality
In 1995 Dollar Tree Stores Inc. went public. That’s the company that operates all those dollar stores you see in strip malls across America.
Because you read UnfairNation, you’re a smart person who understands a lot about income inequality - so you decided to buy $1000 of Dollar Tree stock in 1995, right on opening day … for a dollar per share.
This was the dot-com era of high profits and budget surpluses - your friends said you were crazy buying a stock designed to sell high-volume, poor quality merchandise. “At least invest in something reasonable in the same category, a business with a future, like a department store!”
So you took their advice, hedging your bet, and bought $1000 worth of three upmarket retailers: J.C. Penney, Macy’s and Sears - you know … companies that sold things for more than a dollar and were located in upper middle class, affluent neighborhoods.
Just for kicks you also bought some shares of a really affluent retailer, like Tiffany’s.
I think you know where this is going.
In 2023 - your investment in Dollar Tree paid off tremendously: a rate of return in excess of 15% per year. Similarly, your investment in Tiffany’s - a retailer on the other extreme end of the market - also did well, netting you nearly 11% per year.
But all of your investments in retailers that serve the middle and upper middle class tanked: you lost your entire investment in J.C Penney after it went bankrupt and had its stock delisted. Your investment in Sears suffered a similar fate. And your Macy’s stocks? A measly .36% rate of return per year.
Sad proof that inequality exists: investing in it has paid off
The stock market is one of many mechanisms that we use to judge our best guesses on future human behavior in the aggregate. It is also a reflection of what a society chooses to invest in, and what it ignores. How well dollar stores and luxury retailers have done in the stock market compared to how poorly stores designed to serve the middle class have fared reflects the growing extreme inequality in the United States over the last three decades.
Today, dollar stores are the fastest growing sector in retail. In 2021, nearly half of the new stores that opened in the U.S. were chain dollar stores — "a degree of momentum with no parallel in the history of the retail industry.”
Dollar stores have done well not only because investors bet on their success, but because their customer base grows every year. Every year that wages have failed to keep up with the cost of goods or a family has been unable to afford a home despite working multiple jobs, is a year that dollar stores have done well.
Its no coincidence that both the period of dollar store ascendance and middle-market retailer decline tracks exactly the period in American history since wages have failed to keep up with the cost of goods.
Increasingly, Americans either buy the cheapest thing, or the most expensive thing - because fewer and fewer consumers exist to buy a reasonably priced thing.
The dollar doesn’t just invade overseas
Dollar stores aren’t just a symptom of growing economic inequality, but one of its most fundamental contributors.
At the start of 2022, Dollar General and Dollar Tree, which owns Family Dollar, together operated more than 34,000 stores in the U.S., more than McDonalds, Starbucks, Target, and Walmart combined.
“Dollar stores are markers of the places that the country has written off.”
Almost all of these stores were built in low-income Black and Latino urban neighborhoods, or low-income predominantly white rural neighborhoods. Drive around the small towns dotting California’s central valley, as I often have, and it seems like they are the only retail outlets left.
It seems that way because the dollar store expansion model is predatory and destructive, particularly when we look at how local grocery stores fare when a chain dollar store moves in:
Instead of opening up in new or growing communities, dollar store operators often “carpet bomb” pre-existing communities, opening up several low-cost stores within a few miles, or even a few blocks of each other, driving out pre-existing local businesses.
These local businesses, like the neighborhood grocer, are the only source of reasonably priced fresh produce, meat and other healthy foods.
Left without these businesses, communities often have to shop at the only game in town: the dollar store. Dollar stores carry almost no fresh produce, leaving low-income folks to buy unhealthy canned or packaged foods or commute further to buy real, fresh produce. In short, dollar stores help create and expand food deserts in low income communities.
The carpet-bombing strategy also makes it difficult for a new business to exploit the growing demand for healthy food.
And lastly, though dollar stores are indeed cheaper than the stores they replace, the variety and quality of merchandise doesn’t compare. Low-income or time-poor consumers aren’t well-served when they have to spend far more time hunting for basic items they could have found at a local grocer that no longer exists.
The dollar store monopoly makes them almost impossible to control
In an earlier newsletter I talked about the “Rule of Three” and how 2-3 companies are running entire industries in the United States.
This trend, and its contribution to inequality, can be seen most clearly in the complete impunity with which dollar stores are allowed to operate and proliferate.
The dollar store industry is a duopoly with two major companies, Dollar General and Dollar Tree, controlling over 90% of the market. Having only one other direct competitor allows both companies to effectively set market rates, investment terms and contract clauses. Because of their massive market power and investment capital (remember, Wall Street loves dollar stores … and there’s only two places for the money to go), dollar stores can buy inventory in bulk at deep discounts - making it impossible for neighborhood grocery stores to compete.
This market power and absence of oversight also lets dollar stores get away with a lot.
Over 92% of Dollar General employees (including some management) make less than $15 a hour, these poorly paid employees ironically create more customers for their stores. The arrival of a dollar store also diminishes the overall number of jobs, further driving rural towns and communities of color into economic depression.
Dollar stores are eyesores and magnets for crime and workplace safety violations. To save costs and because their merchandise is disposable, chain dollar stores often don’t invest in security, leaving municipal public safety organizations and taxpayers to bear the brunt of thefts and assaults which often occur in and around dollar stores.
And be forewarned: buying food from a dollar store may get you sick, as dollar store purchases have some of the highest incidences of food borne illnesses in the country.
So prolific are the problems with dollar stores, that academics like myself now use their presence as a reliable predictor of future poverty in a community.
So what can you do?
Buy local. Aside from the marginal taxes and salaries (paid by all businesses), dollar stores aren’t really contributing to the local economy. On the other hand, local stores hire local vendors, buy local produce, hire a local attorney and accountant to do the books. The money local stores spend fuels the community they serve.
Encourage local elected officials to halt or slow dollar store construction. Because there are no federal or state laws limiting the dollar store duopoly, local governments is where it’s at. Over the last few years, over 50 cities have succeeded in limiting dollar store growth, but it’s all been because of organizing and citizen pressure. Here’s a great guide to get you started.
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