Is This Game Over for Dollar Stores?

Over the past few weeks, investors have been selling off their shares of national dollar store chains like Dollar Tree and Dollar General in the face of weakening sales. Now, anyone who has a middle class income or lower might be surprised to learn that sales haven’t been so great at these bargain retailers – despite a decent economic recovery on paper, most Americans are still feeling the pinch. There are several factors that have been driving sales down at dollar stores across the nation, primarily increasing rent and healthcare costs combined with stagnant wages, deflation in food prices, and new restrictions on food stamps.

Stores have been coming up with their own solutions to these problems, most of which involve slashing already low prices or launching their own store brand products. Neither of these are very attractive for investors, though.

Why dollar stores might not be a bad investment after all

That being said, people who are fleeing from their investments in this sector might be a bit shortsighted. Economists and analysts have reported that there is substantial room for growth here, with top execs at Dollar General and Dollar Tree saying there is enough of a market to more than double the number of locations across the United States. Dollar Tree also acquired Family Dollar, with plenty of room to improve profit margins there.

Furthermore, the deflation in food prices appears to be coming to a halt, which tends to drive consumers back to cheaper options like dollar stores. And while restrictions have increased on SNAP assistance in 22 states, food stamps only make up less than 5% of sales at these stores.

Finally, there is the unemployment rate, which is down to normal levels again (some would argue that the jobs available are low-paying, but it’s usually better than nothing). Perhaps more importantly, 28% of small businesses have at least one job opening, and as SMBs do most of the hiring in the country, that could bode well for people’s overall financial situation – perhaps enough so that they don’t have to forego their $0.99 bottle of shampoo this month.