United States of Dollar Stores – dollar stores see a rise in households making $70,000 a year or higher as a customer base. What does the rise of dollar stores say about the middle class?

Before 2000 dollar stores were largely seen as a bazaar of quirky trinkets and plastic oddities.  Many sold excess volume of products, even selling old Super Bowl t-shirts of teams that did not win.  Yet the dollar store of today is not the one of even one decade ago.  The disillusionment of the middle class and the rise of a low-wage American worker base have created a booming business for dollar stores.  Customers from more affluent backgrounds are now shopping at these stores because of an economic caution about their declining purchasing power.  Even in the midst of the boom in the stock market we still have over 45,000,000+ Americans receiving food assistance.  I talked about this large segment of our population in EBT Nation.  What does the rise of the dollar store tell us about the future of the American economy?

Dollar Store growth

Dollar stores have been around for many decades but the surge in big name dollar stores really hit a full head of steam once the recession arrived:

dollar general and family dollar chart stock

You can see that the two leading dollar stores, Dollar General and Family Dollar hit full stride after 2008.  This is a billion dollar business that is benefitting from the weakness in the overall economy.  As more income is concentrated in fewer hands, the middle class gets squeezed down and with trillion dollar bailouts targeted at the financial sector, many Americans are seeing their purchasing power dwindle.  Yet this compression is not felt as heavily at dollar stores where many can live large with a declining dollar, even if it is only for a brief shopping experience.

Part of this growth also comes from our persistently high unemployment rate:

unemployment us 2012

5 states still have underemployment rates that are above 20 percent.  So even though jobs are being added many are being added in lower-wage service sector fields.  5 million good paying jobs were lost since the recession hit and only about 1 million have been recovered.

Impact of compressing middle class on dollar stores

One of the surprising trends with dollar store growth comes from more affluent Americans becoming customers:

“(NY Times) Financial anxiety — or the New Consumerism, if you like — has been a boon to dollar stores. Same-store sales, a key measure of a retailer’s health, spiked at the three large, publicly traded chains in this year’s first quarter — all were up by at least 5 percent — while Wal-Mart had its eighth straight quarterly decline. Dreiling says that much of Dollar General’s growth is generated by what he calls “fill-in trips” ­— increasingly made by wealthier people. Why linger in the canyons of Wal-Mart or Target when you can pop into a dollar store? Dreiling says that 22 percent of his customers make more than $70,000 a year and added, “That 22 percent is our fastest-growing segment.”

I found this trend intriguing but this stems from the fact that most average Americans are seeing a compression to their real wage growth:

growth-in-income-inequality

The fastest growing segment of dollar store customers are coming from those making $70,000 a year or more.  In fact, 1 out of 5 dollar store shoppers come from this group.  Keep in mind the median household income in the US is $50,000 and those that make $70,000 a year or more are in the top 35 percent of households.

This also plays into the reality of those lower-wage service sector jobs being added:

“This growth has led to a building campaign. At a time when few businesses seem to be investing in new equipment or ventures or jobs, Dreiling’s company announced a few months ago that it would be creating 6,000 new jobs by building 625 new stores this year. Kiley Rawlins, vice president for investor relations at Family Dollar, said her company would add 300 new stores this year, giving it more than 7,000 in 44 states.”

If you look at where dollar stores are most prevalent you will find them all across the country but they are most prevalent in the South:

dollar stores us

The rise of the dollar store goes hand and hand with the loss of the middle class in America.  The largest customers at dollar stores are still those with lower incomes, households making $40,000 a year or less make up nearly half the customer base.  But when this pool continues to grow you have business growth and that is what we are seeing here.  The average per capita income in the US is $25,000 which doesn’t go far given the cost of healthcare, energy, and education.

It is also fascinating to see that 40 to 45 percent of dollar store items now come from big name brand companies.  This industry is now a multi-billion dollar industry.  I’ve driven around and see Subway and KFC for example now having marketing material showing “EBT accepted here” and dollar stores with a large and growing segment of their aisles made up of by food, are seeing a boon in this economy.  I mean think about it with 45,000,000+ Americans receiving food assistance this is a large customer base.  You also have many retirees who heavily rely only on Social Security stretching their declining buying power at these stores.  Even with low profit margins business can be good.  Not sure if we should be thrilled that dollar stores are one business segment that is booming in our modern day economy.

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6 Comments on this post

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  1. Paul said:

    Dollar stores are on the rise. Yes, but even more on the rise is Freecycle. People are choosing to give stuff away free and pick up stuff they need. It is amazing to see all household goods being given away.

    February 12th, 2012 at 7:31 am
  2. Blizz said:

    I am one of those people that used to pay full price at name brand retailers back in 2007 before the “Great Recession”. Lost my good paying job in 2008 and had to re-evaluate spending habits and value of a dollar. Back on the totem pole thankfully with a good job in my industry, but never again will I pay full retail price for everyday household disposable goods. Here in California the cost of living is high so you have to cut corners to actually save money for retirement, a rainy day fund, and the “sunshine tax” inflated rents and fuel costs. 99 Cents Stores are a great place to buy paper towels, toilet paper, cleaning supplies, and random household repair items. Not much in the way of food but that is what Trader Joes is for.

    February 12th, 2012 at 9:25 pm
  3. bill hopen said:

    Dollar stores are positioned closer than big stores saving gas and time, they are quick in and out convenience shops without the typical 25% convenience store mark-up. However THEY NO LONGER SAVE YOU MONEY! in past two years you see package sizes shrink 10-25% and prices rise by 25-50% adding up to almost a price double. Also LOW QUALITY products are of dubious value for price.

    to keep my business, dollar stores have to delivery VALUE and savings…I find myself buying less and less each trip there now and making fewer trips to Dollar stores now as I see value and savings shrink

    February 13th, 2012 at 6:40 am
  4. brian tracy said:

    Dollar General and Family Dollar are NOT dollar stores ,, the one from the 1980’s I remember is “Everything’s a Dollar” (corp name Value Merchants , symbol was VLMR) and today the dominant dollar store is “Dollar Tree” (DLTR) … http://finance.yahoo.com/echarts?s=DLTR+Interactive#symbol=dltr;range=5y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

    April 29th, 2012 at 7:00 pm
  5. clarence swinney said:

    GOOD MORNING TO YOUR STAFF

    BEST ON THE INTERNET

    THANKS

    October 22nd, 2012 at 4:00 am
  6. John said:

    My strategy does not involve the dollar store.
    I have a very simple strategy….whenever I find a very good sale on an item I typically use, I buy a VERY LARGE quantity of it. After using this strategy for a while you will notice that you have a nice stock of virtually everything you need. This allows you to subsequently wait for the next really great sale price before you need to replenish your supply of an item. Additionally, after doing this for years now I have essentially increased my income by 20-25 percent……via savings at the checkout line. I NEVER buy clothes unless they are at the half off price. Same goes for shoes. Household things likes sheets and blankets also. If you simply decide that this is a game, and that you are out to win…..you will do very well because you will find that your mindset changes. No more impulse buys! When you REALLY think you want something just imagine yourself one year from now……..how badly will you still want that item? YUP! You got it…….it will have faded from memory.
    Come on people. Business is sitting on more money today than ever before in history.
    Screw them. Stop paying their prices.

    March 12th, 2013 at 9:55 pm

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