Dollar Store Stocks Are Cratering and Pundits Can’t Agree Why

A decade of slow growth delivered magnificent gains for “dollar store” stocks like Dollar Tree and Dollar General, but both are now going off a cliff. However, pundits can’t agree: Is it because high inflation is making the poor even poorer, pricing them out of even the cheapest retail option in town? Or is it because inflation is easing, so they can now head to larger big box stores where prices have been slashed to increase competition and snag more discount shoppers? 

Big box stores like WalMart and Target have introduced more low-cost items to bring in more of these customers, but dollar stores have been contending with other issues as well. There were employee protests at Dollar General due to poor working conditions — an issue that was validated by millions of dollars in fines from the US Department of Labor. Dollar Tree kept contaminated applesauce on its shelves for weeks, even after the manufacturer issued a recall notice. And at Family Dollar (owned by Dollar Tree), a rat infestation struck a distribution center, and it was apparently so severe that the entire facility had to be closed down.

It’s gotten bad enough that Dollar Tree is now considering selling off the Family Dollar brand entirely. But all the dollar stores also overplayed their hand, opening too many new retail locations during their growth period that now they can’t sustain. These are expensive problems stemming from mismanagement, but the core of the issue is a simple common denominator. 

Dollar General Stock, 2010-Present

Americans are struggling, going deeper into debt, and their money keeps being worth less than it was 5 years ago. Inflation and other economic woes always hit the poor the hardest. Both dollar stores and big box stores have tight margins, but larger chains have more ability to adjust their inventories with more lower-tier products as needed, helping them more or less obsolete the dollar chains in response to market pressures. And with such tight margins, any mismanagement will have a more destructive effect on the bottom line.

Perhaps the overall quality of the goods themselves has gone down at big box stores, decreasing production costs to make up for inflationary pressure. Or perhaps big box retailers are simply stocking more cheap junk than they were before in response to inflation-weary customers.

But analysts contradict themselves: Because of high inflation, consumers are more focused on low prices than they were before. Fair enough. But they also say that since inflation is coming down, big box stores are able to offer more discounts to woo shoppers from dollar stores. So which is it? Are customers fleeing dollar stores due to higher inflation, or due to lower inflation?

Dollar store CEOs like Dollar General’s Todd Vasos blamed inflation for their woes, but insisted on maintaining the $1 baseline price. This was revealed on a call with investors in the wake of news from back in 2021 that rival Dollar Tree was raising its baseline price to $1.25, succumbing to post-COVID inflation and violating its namesake. However, both chains offer a range of higher-priced products as well, which are more subject to inflation-driven increases across the board. For example, earlier this year at Dollar Tree, the $5 price cap was raised to $7 — a stunning 40% increase.

It would be nice if these dollar store customers could buy gold to maintain their purchasing power, but the poor are some of the least likely to invest in inflation hedges like precious metals because they’re too busy just trying to make ends meet. And while politicians blame “price gouging” and beg for lower interest rates, they only make the problem worse, dumping gasoline on the red-hot fire of inflation and decimating the purchasing power of the same struggling constituents they claim to be trying to help.

Now those rate cuts are coming, and an increased money supply will drive prices even higher. That means a higher price for each ounce of gold, but it also means more destruction for the middle and lower classes, neither of which have enough income to hedge against the debasement of their currency.