No. of Recommendations: 37
Anecdotal observations on Dollar Tree, Dollar General, and Family Dollar.
In all of the above, the prices are not any better than Walmart and often worse, the shopping experience is horrible. While WalMart has improved more than any retailer I know. The WMT stores are, dare I say, beautiful—something almost unimaginable a decade ago. They are consistently nicer than Target. And Target was positioned as an upscale WalMart. So much for that.
I looked into DG and spoke with employees. I asked about shrink—they both said their store is “robbed blind”. Nothing they can do about it, 1-3 employees on duty at any time. There are no resources for reducing theft, they don’t have ability to do it and are told not to attempt. Mind you, this store is an upper middle income extremely safe, low crime suburb of Boston. The Family Dollar went out of businesses here. The Dollar General and Dollar Tree get decent business—but it’s niche stuff only. You pick up batteries, or a greeting card ,or Armorall you need for a last minute project, etc. Even the poor customer prefers the vastly superior WMT experience for the bulk of their shopping.
Walmart has the resources through its scale to reduce theft. They have individuals at each store specifically assigned to such. The results, across the largest possible sample size, demonstrate progress. Walmart I’m certain serves more “poor people” than the Dollars combined. They’re also growing rapidly in the 6-figure category thanks to the $Billions spent on modernization. They’re safe, attractive and inexpensive. A proposition appreciated by the poor & rich alike. As their client mix now reveals.
Most importantly: I think the Dollar Stores have lost their moat. The moat was ultra low pricing, lots of stuff you can pick up close to home. Well, the in-store experience has just deteriorated in part because the cash that should have gone into refurbishment, capital REQUIRED for reinvestment, etc went to shareholders. That was never “free cash”. That’s part of the problem. It LOOKED like free cash. It was not. So it was a very temporary—arguably illusory moat.
And now these stores are essentially targets of the free product seeking, soft criminal poor and middle class. And not just in “rough neighborhoods”. This is a real problem and I don’t believe it’s temporary. The store I visited would probably have to increase its minuscule payroll by 25% to even attempt to patrol theft. In an environment in which the LARGEST percentage increase in pay since the Pandemic has gone to the LOWEST paid, least skilled workers (minimum wage no longer exists—$9/hr workers are now paid $16/hr. This is who works at DG. Figure those percentages). If your baseline is Dollar General employee pay—you’re getting killed with employee cost. And that low cost is/was essential to the business plan.
I think these stores are toast as an investment. Look, THIS economy is best-of-all-worlds for the Dollars: 5% nominal GDP with lower middle and middle strained by high prices. You should see a bifurcation that on the lower end is the ultimate Dollar Stores’ Sweet Spot. Where’s the migration?
The amount of money it will take to upgrade these stores, improve the experience, and combat shrink is massive. It can be done. But not with my capital. I wish you guys luck. I wouldn’t own WMT either btw. It’s a very expensive stock. And eventually the Dollars will spend the fortune it takes to compete. And eat into that pie.
Most shareholders will not win, customers will win fabulously. IOW, the history of Retail has not been repealed. Firmly in the “too tough” pile.
