The end of the splurge
Even dollar-store customers are staying away from unnecessary items, and the slowdown in showing in company earnings.
This became evident at Target (TGT) and Wal-Mart (WMT) in the recession as those stores saw customers pass up furniture and sporting goods in favor of basic must-haves like toilet paper and cereal.
Now even dollar stores are seeing the end of the splurge. Sales and profits aren't growing as fast anymore, The Wall Street Journal reports. Shoppers are no longer buying even the cheap toys and home decorative items.
With high gas prices and high unemployment on their minds, shoppers are sticking to food, cleaning supplies and other necessities. Those products have lower margins, and as a result, investors are seeing missed quarterly earnings from Dollar General (DG), Family Dollar Stores (FDO) and Dollar Tree (DLTR).
"This is a sector that was in nirvana during the recession as customers traded down," one retail analyst told the Journal. "But now their shoppers have a bunker mentality. With all this mounting inflation crowding out discretionary purchases, it's painful."
Check out this interview with Family Dollar's chief, who says many customers are living paycheck to paycheck. Can Americans beat the economic pessimism and get back on the road to recovery?
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Sales at dollar stores are still growing -- their increases of between 5% and 7% from a year ago are nothing to sneeze at. But they just aren't growing as fast as analysts would like.
Shoppers have become incredibly price-conscious. Dollar General's chief executive says customers are sensitive to an item's price changing even from $1 to $1.15. With that kind of mind-set, it's hard to justify spending $4 on a pair of sandals or $5 for a toy.
That's why Target and Wal-Mart are trying to meet customers at the dollar-store level. Wal-Mart is even mimicking dollar stores with a new line of smaller shops aimed at price-conscious customers. The smaller express stores are designed to fit in strip malls and other places where a giant traditional Wal-Mart couldn't go.
So now, retailers simply must hunker down like shoppers and hope spending improves with the economy. There's no choice but to simply offer shoppers the basics at the prices they want. The scented candles and wedge sandals will have to wait.
Dollar-store stocks are still flying high, however. Shares of Dollar Tree have been on fire since mid-February, soaring more than 30% to $69.40 Monday. Shares of Dollar General have jumped about 14% to $33.41.
Family Dollar hasn't seen the same enthusiasm, however, with shares hovering between $50 and $54 in the same period. The stock was trading at $52.75 Monday.
So where are the positive stories in the retail sector these days? Sadly, the momentum is with pawn shops and payday lenders, The Associated Press reports. So-called "desperation stocks" are seeing new life.
"People are broke. They're all chasing value. It's a seismic shift in mind-set," a retail analyst tells the AP.
This is the result of globalized trade. U.S. wages will fall further before equilibrium is reached. Globalized trade has also hastened the peaking of light sweet crude, which has brought the end of affordable transportation fuel and perhaps the end of capitalism.
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