Rogelio V. Solis/AP Photo
Earnings for both Dollar Tree and Dollar General, the market leader, went up last quarter by close to 5 percent.
The least surprising development in America today is the rise of the dollar store. The combination of several decades of growing inequality and the recent inflation shock has made anything with lower prices enormously attractive to a large segment of the population. Even with Dollar Tree deciding to raise the price of many items by a quarter last year (without changing the name; I guess $1.25 Tree doesn’t sound as good), low price points can still drive customers to discount stores.
Earnings for both Dollar Tree (which also owns Family Dollar) and Dollar General, the market leader, went up last quarter by close to 5 percent, at a time when the overall economy is moderating. Credit card sales are up, revealing a lack of available cash, and even within the dollar store context, higher-priced or more discretionary sales, like liquid detergent or apparel, are down.
“We are here to help that customer through probably the toughest time she’s seen in quite a while,” Dollar General CEO Todd Vasos said on an earnings call. But the reality is that Dollar General is helping themselves, buoyed by institutional precarity and potential recession. Vasos, who will step down as CEO in November, told analysts in 2017, “The economy is continuing to create more of our core customer.” For dollar stores, poverty is a growth market; efforts to reduce poverty would cut into their core customer base.
The fantastic growth of dollar stores across America is obscured by where it’s happening, in rural and left-behind areas as well as urban deserts not frequented by reporters. There are over 35,000 dollar stores in America—more than there are Walmart, Starbucks, and McDonald’s stores combined. Dollar General has opened around 7,000 new stores just since 2015, mostly in rural America, and another 1,000 are planned for opening this year.
While the Dollar Tree move to $1.25 prices was thought by some analysts to be detrimental to the brand, it increased the company’s gross margins, which are up to 37 percent, a very high number for retail. Company stock has gone down because of lower forecasts due to a potential recession, but low-priced stores are likely more recession-proof, as what they lose in customers who can’t afford anything they gain in customers who now can only afford less. Dollar Tree has said that more of its new customers have incomes of $80,000 or higher.
The dollar store explosion reveals a truth reinforced by the inflation shock: There are really only two types of customers in America, the elite and the desperate. This is a manifestation of the hollowing out of the middle class, which President Biden’s industrial policies attempt to reverse. If they fail, we’ll see yet more Dollar Generals and similar cut-price stores continue to sprout up everywhere.
More than a decade ago, in the wake of the Great Recession, Citigroup analysts wrote a research note explaining that America was a plutonomy, and that businesses should probably spend their time catering to the rich consumer rather than the “average” consumer, since the rich take up such a disproportionate share of wealth and spending.
There are really only two types of customers in America, the elite and the desperate.
Inflation has pushed more and more people to the other end of that scale, so that they rival the luxury buyers at the high end in terms of market share. That’s how you can make a whole business out of preying upon the poor, as the dollar store sector does expertly.
You can also see this dichotomy in health care. The rich have gleaming hospitals, private rooms, and concierge service. For everyone else, there’s CVS.
The drugstore chain, which also owns insurance company Aetna and pharmacy benefit manager Caremark, has moved aggressively to become a discount health provider. First, CVS installed Minute Clinics in more than 1,100 locations. This started with an acquisition; CVS bought the company that created the retail clinic idea in 2006. The Minute Clinics are comparable to primary care, staffed mostly by nurse practitioners and designed to provide vaccinations, contraception services, physicals, chronic disease management, and drive-through testing. Minute Clinics can deal with injuries too, an attempt to cut into the urgent-care market.
CVS added telehealth to its Minute Clinic concept during the pandemic. And this week, CVS announced the purchase of Signify Health for $8 billion. Signify, formed by a private equity firm, is a home health company with 10,000 doctors and clinicians under contract, who use connected iPads to visit patients. It’s essentially Uber for health care, which Signify’s CEO Kyle Armbrester has said on the record. “We’re in a gig economy and this is a flexible model,” he told The Wall Street Journal.
CVS is actually following the pack here. Virtually every one of its competitors—Walgreens on the pharmacy side, and UnitedHealth and Humana on the insurer side—has bought a home health company in the past couple of years. You can see the future shaping up: If you’re rich, you go to the hospital, and if you’re not, you go to a clinic in a drugstore or have a gig-economy clinician come to your house. The biggest health care company by revenue, CVS, is leading this charge. They can now treat you in their clinics or virtually, deliver follow-up care to the home, supply your prescriptions, and insure you, all in one.
Conversely, brands like Dollar General are moving out of their traditional cheap retail niche—becoming full-service stops for the poor, with food, clothing, household supplies, and more. They are positioning themselves as the sole alternative for Americans without vast resources.
This opportunistic dollar store-ization can be seen in many industries, where companies exist to catch people falling out of the middle class and pull what’s left of their money away from them.
This ends up being pretty bad for workers, whether it’s dollar store employees running entire stores single-handed or doctors and clinicians becoming glorified Uber drivers. More broadly, it fuels economic concentration. If there are only two categories of people—those with real money and everybody else—it’s easy to set your business toward one or the other, with an eye toward capturing everyone in that subset.
That the economic aid that once flourished during the pandemic has now vanished is good for these businesses. If your model relies on poverty, it’s in your interest to keep people there. This creates powerful constituencies in opposition to things like renewing the enhanced Child Tax Credit.
Biden’s economic project aligns with rebuilding the middle class through reindustrialization. That only works if the jobs are good, and on that front the jury is still out. Moreover, rising inflation further segments America into two economic sectors, as even middle-class families find it harder to afford the necessities of life. A looming recession creates the same dynamic.
If you want to know how our economy is faring over the next couple of years, sit yourself in front of a dollar store and watch the foot traffic. The more crowded it is, the worse off we’re all doing.
