The Recession Just Hit Dollar Stores “People Can No Longer Afford to Shop”
Summary
TLDRFamily Dollar's announcement to close 1,000 stores highlights the financial struggles of lower-income consumers, attributed to persistent inflation and reduced government benefits. The company's CEO, Rick Dranging, suggests that the macroeconomic environment is the primary cause, not competition. This is further supported by Dollar General's财报, which also shows a decrease in net sales and a minimal increase in same-store sales. The data indicates that while customers are visiting dollar stores more frequently, they are spending less, reflecting the broader economic challenges and consumer spending patterns. The script also discusses the misconception that rising oil prices lead to inflation, when in fact, they contribute to a deflationary environment by reducing consumer spending power in other sectors. The overall message is that the retail struggles and consumer spending data point to a weakening economy rather than a booming one, with the labor market's condition and increased living costs being significant factors.
Takeaways
- 🏪 Family Dollar is closing 1,000 stores due to financial struggles, highlighting the challenges faced by lower-income consumers.
- 📉 The company's earnings report indicates that 600 stores will close this year, and another 400 over the coming years.
- 🔄 The merger between Dollar Tree and Family Dollar has been problematic from the start, contributing to their current struggles.
- 💰 Persistent inflation and reduced government benefits are cited as major factors pressuring lower-income consumers, who form a significant part of Family Dollar's customer base.
- 📉 Dollar General also reported a net sales decrease of 3.4% in the fourth quarter of fiscal 2023, indicating challenges beyond Family Dollar.
- 🛍️ Same-store sales for Dollar General increased by only 0.7% year-over-year, showing that customer spending is decreasing despite higher traffic.
- 📉 US retail sales have been concerning, with downward revisions to previous months' data suggesting a struggling economy.
- 🚗 Higher gasoline prices are affecting consumer spending, but they are not inflationary; instead, they lead to less spending on other goods and services.
- 💹 The supply shock from oil prices is deflationary over time, as the rest of the economy suffers from having to pay more for energy.
- 🏢 Labor market struggles, including hiring freezes and layoffs, are contributing to consumer struggles and reduced spending.
- 🌐 The economic challenges faced by Family Dollar and similar retailers are not isolated incidents but reflect a broader economic downturn.
Q & A
Why is Family Dollar closing 1,000 of its stores?
-Family Dollar is closing stores due to financial struggles, primarily because customers are unable to afford shopping at their stores. This situation is attributed to the macroeconomic environment, including higher oil prices and reduced government benefits, which are impacting lower-income consumers significantly.
What does the CEO of Family Dollar attribute the company's struggles to?
-The CEO, Rick Dranging, attributes the company's struggles to the macro environment, specifically mentioning persistent inflation and reduced government benefits that continue to pressure lower-income consumers, who make up a significant portion of Family Dollar's customer base.
How has the merger between Dollar Tree and Family Dollar affected their performance?
-The merger between Dollar Tree and Family Dollar has been troubled from the start, with both companies struggling to hold down prices as much as their competitors, leading to the decision to close a significant number of stores.
What does the performance of Dollar General indicate about the retail sector?
-Dollar General's performance, with a reported decrease in net sales and only a slight increase in same-store sales, suggests that the struggles faced by Family Dollar and Dollar Tree may not be isolated incidents but indicative of challenges across the retail sector.
How do higher oil prices impact consumer spending?
-Higher oil prices lead to a reduction in consumer spending as consumers have less disposable income after paying for increased energy costs. This can result in demand destruction and negatively affect the overall economy.
What does the term 'supply shock' mean in the context of the economy?
-A supply shock refers to a sudden and significant change in the supply of goods and services in an economy, often due to external factors like oil price increases. This can lead to higher prices and reduced consumer spending as people have less money to spend on other goods and services.
How does the labor market's condition affect consumer spending?
-A struggling labor market, characterized by hiring freezes, job losses, and reduced hours, leads to lower consumer spending. When consumers are uncertain about their employment or income, they tend to cut back on non-essential spending, which affects retail performance across the board.
Why are the oil price increases not considered inflationary?
-Oil price increases are not inflationary because they do not result from excessive money printing or credit creation. Instead, they cause a supply shock, where the increased cost of oil reduces the amount of money available for spending on other goods and services, leading to less overall demand and economic growth.
What was the impact of retail sales in the United States for the month of February?
-For February, retail sales increased by 0.58%, which is a positive sign, but it does not fully recover from the decline experienced in January. This also raises questions about the reliability of these figures given previous downward revisions.
What misconceptions exist about the relationship between oil prices and inflation?
-A common misconception is that oil price increases inherently cause inflation. However, the reality is that while oil prices can lead to higher consumer prices, they also reduce consumer spending on other goods due to less disposable income, which can ultimately lead to deflationary pressures in the broader economy.
What is the wage-price spiral theory and why is it not applicable in the current economic context?
-The wage-price spiral theory suggests that rising prices lead to demands for higher wages, which in turn lead to further price increases. However, this theory is not applicable in the current context because there is no evidence of sustained credit creation or monetary inflation to support such a spiral. Instead, the current economic situation is characterized by a supply shock, with higher oil prices leading to less spending in other areas, not a wage-price spiral.
Outlines
🛒 Family Dollar's Store Closures and Economic Struggles
Family Dollar is closing 1,000 stores due to financial struggles, highlighting the challenges faced by lower-income consumers. The CEO attributes the company's issues to the macroeconomic environment and reduced government benefits. The discussion extends to the impact of higher oil prices on consumer spending and the broader economy, suggesting that the current situation is not indicative of inflation but rather a supply shock. The narrative also touches on the struggles of Dollar Tree and the retail sector as a whole, emphasizing the correlation between labor market weakness and consumer spending habits.
📉 Retail Sales and Recession Indicators
The script delves into the analysis of retail sales data, which has been revised downward multiple times, indicating a struggling economy. Despite initial positive reports, the data shows a decline in retail sales, particularly in the fourth quarter and January, with only a slight recovery in February. This trend is seen as a sign of a potential recession, corroborated by the struggles of dollar stores and the broader retail sector. The discussion also addresses the unreliability of initial retail sales estimates and the downward revisions that have occurred, suggesting a continued economic downturn.
💰 The Misunderstood Impact of Oil Prices
This paragraph clarifies the common misconception that rising oil prices are inflationary. It explains that while businesses may try to pass on increased costs to consumers, the reality is that higher oil prices lead to less spending in other areas, effectively creating a deflationary effect. The historical context of the 1970s is provided to contrast the current situation, emphasizing that the oil price shocks of that era occurred alongside significant monetary inflation, which is not the case today. The narrative also addresses the wage-price spiral theory and why it does not apply to the current economic scenario.
🏢 Labor Market Weakness and Its Economic Consequences
The final paragraph ties the labor market's weakness to the broader economic struggles, including the closure of Family Dollar stores and the reduced spending observed by Dollar General. It argues that if the economy were truly booming, businesses like dollar stores would not be struggling. The increased spending on necessities due to higher oil prices leaves less disposable income for other purchases, leading to a supply shock. The paragraph concludes by urging viewers to focus on labor market and consumer spending data rather than short-term inflation indicators, which are misleading in the current context.
Mindmap
Keywords
💡Family Dollar
💡Macro Environment
💡Inflation
💡Recession Signals
💡Consumer Spending
💡Labor Market
💡Supply Shock
💡Dollar General
💡Retail Sales
💡Wage Price Spiral
Highlights
Family Dollar is closing 1,000 stores due to financial struggles.
The company CEO attributes the struggle to the macro environment and higher oil prices.
Dollar Tree is also closing stores, with 30 closures planned due to lease expirations.
The merger between Dollar Tree and Family Dollar was troubled from the start.
Inflation and reduced government benefits are pressuring lower-income consumers.
Dollar General's earnings report also shows a decrease in net sales.
Same store sales for Dollar General increased by only 0.7% year-over-year.
Consumers are visiting dollar stores more frequently but spending less.
The labor market is struggling, affecting consumer spending and the economy.
Higher gasoline prices are not causing inflation; they are a supply shock.
US retail sales have been worrisome, with downward revisions to initial estimates.
The fourth quarter of the last year saw negative nominal retail sales.
January's retail sales decline was even worse than initially thought.
February's retail sales showed a slight increase, but trust in these figures is questioned.
The supply shock from oil prices is deflationary over time, hurting the economy.
The 1970s oil price shocks were not the cause of inflation but exacerbated existing inflation.
The current economic situation is not like the 1970s, as there is no underlying monetary inflation.
The labor market's weakness and increased spending on necessities are leading to less consumer spending.
Dollar stores' struggles indicate that the economy is not truly booming, contrary to popular belief.
Transcripts
Family Dollar is now closing 1,000 of
its locations because people can't
afford to shop at Family Dollar the
company CEO just yesterday said in a
quote Family Dollar is a victim of the
macro environment out there but isn't
that the booming no Landing environment
what does it say about the real state of
the real economy that people can't
afford to shop at these dollar stores
what it does say is that among other
things higher oil prices are not
inflation
we've got more recession signals in
consumer spending we've got these Dollar
Store reports we've got us retail sales
that back up the dollar store reports
and why oil prices are not inflationary
as everyone goes right back into
full-blown inflation panic mode thanks
to J poell and the Federal Reserve so
we'll start out with Family Dollar the
company yesterday in its earning report
said we're going to have to close 600
stores this year and then another 37
stores over the coming years and the
parent company Dollar Tree they're going
to close 30 of their stores as their
leases come due and the most most M
mainstream commentary surrounding Family
Dollar struggle has focused on that
merger between Dollar Tree and Family
Dollar which was indeed troubled from
the very beginning all the way going
back to 2015 however as we'll see it
really is the macro environment as the
company CEO Rick draing said persistent
inflation and and reduced government
benefits continue to pressure the lower
income consumers that comprise a sizable
portion of Family Dollars customer base
so as Family Dollar which hasn't been
able to hold its prices down as much as
its competitors so as Family Dollar has
struggled and a court Dollar Tree is
struggled too it has led to this idea
that maybe Dollar General is booing this
is just Family Dollar and not the entire
retail retail area but Dollar General
just reported its earnings earlier today
and they were quite a bit like Family
Dollars from the earnings released from
Dollar General it says net sales
decreased 3.4% to 9.9 billion in the
fourth quarter of fiscal 2023 compared
to 10.2 billion in the fourth quarter
fiscal 2022 because that included net
sales for a 53rd week of about 700
million the net sales decrease was
primarily driven by the period
containing one less week of sales than
the prior year period as well as the
impact of store
closures partially offset by positive
sales contribution from new stores and
growth in same store sales but here's
the thing those same store sales only
increased by
0.7% year-over-year compared to the
fourth quar of last year and those are
not price adjusted numbers keep in mind
that was driven by an increase in
customer traffic but partially offset by
a decrease in average transaction amount
was is something that the Family Dollar
SE CEO also brought up customers are
going to the dollar store they're going
to the Dollar Store more frequently but
they're spending less when they get
there they can't afford to buy the same
amount of stuff that they were that they
had been buying up to then consumers are
really struggling and in a actually
booming economy the expression Rising
tide lifts all boats in a legitimately
booming economy soft Landing no Landing
whatever the case may be Family Dollar
would be experiencing a Renaissance as
with any of the retailers any of the
high-end retailers any of the the
mid-tier retailers as well as the
low-end a real economic boom especially
where the labor market is strong and
resilient and lots of wage gains you
wouldn't be seeing this type of struggle
at all all across the retail segment of
the United States economy of course it
goes goes around the rest of the world
too but why are consumers struggling and
the reason they're struggling is because
the labor market is struggling and
because they can't afford to pay higher
gasoline prices Consumer Price pressures
are indeed one of the biggest factors
here but they're not inflation and the
oil prices are not inflationary and
we're getting reminded of that and more
data backing up that the idea in the
form of us retail sales for the month of
February now remember retail sales
leading up to this month leading up to
from October through January they had
been increasingly worrisome we go back
to last October September and October
you could tell something had changed in
the real economy markets shifted we got
all sorts of corporate warnings
especially in the retail space that said
hey we don't like what's going on here
something bad seems to be coming well
then retail sales well they stumbled in
October it looked better in November it
looked even better in December and then
January was a big downturn but like we
see in the payroll reports Census Bureau
has been engaging in downward revisions
in retail sales too substantial downward
revisions that we also have to factor in
as well the initial the initial estimate
for October retail sales remember these
are these are in nominal terms was a
minus 0.11% month-over-month change that
was bad enough it was a negative number
it's since been revised lower of course
to minus 0.25 per. November came out
positive that it seemed like customer or
consumers were coming to the rescue of
the Christmas season as it was
increasingly dark uh the initial retail
sales figure was 0 . 35% in November
that's since been revised to a negative
number too a very small negative
0.03% so but that meant that you had two
straight negatives to start out the
Christmas shopping season but then Along
Comes December the initial retail sales
figure for December plus
0.55% it seemed like okay Americans not
buying for Christmas in October and
November but they came in at the last
minute and splurged just a little bit to
save save the Christmas season and that
was the verdict that we got from all the
mainstream media reports after census
put out these estimates well after a
couple revisions since then including
the latest one that just came out today
December was just
0.11% positive but barely which means
that for the entire fourth quarter of
last year nominal retail sales were
negative it really was a bust of a
Christmas season and even worse it backs
up everything that we've been saying
about the recessionary economy in
corroborating a whole bunch of this
other data including the dollar stores
what they're talking about then came the
big decline remember the big decline in
January initially that was thought to be
minus
0.83% but now census says no is actually
even worse it's minus
1.05% so you got the decline in the
fourth quarter and then a huge decline
in January that was even bigger than
originally thought the latest figure for
February is a plus sign plus 0.58% which
is on the one side got positive at the
very least but it doesn't even get back
the entirety of the January Decline and
even worse the real Point here do we
even trust the 0.58% because look at
what happened to December December was
supposed to be a rebound at least it was
supposed to have been at the initial uh
in initial estimate instead what was a
0.55 in December is now basically zero
or close to 0 0.11 so how do we even
trust February 0.58 because like the
payroll reports there's a growing
tendency to really revise these downward
moving forward and it doesn't matter if
they don't revise it downward because
again as you can see from the retail
sales numbers going back to last October
consumers in America are indeed
struggling it's not just a couple CEOs
it's not Family Dollars corporate
struggles it really is coming out in the
data too and we know why that is as I
mentioned the labor market is in
incredibly weak we know there has been a
hiring freeze it's very difficult to
find a job here we know that that many
people have seen their hours cut the
full-time to part-time shift that shows
up in the household survey and then the
rest of the household survey has shown
that maybe there are indeed substantial
layoffs taking place and that has an
enormous chilling effect all across the
economy not just those workers who are
affected by being laid off or those
workers who are affected by having their
hours cut even if you don't have those
happen to you you're looking around and
thinking I might need to tighten my belt
anyway because I might be next either
having my hours cut or maybe even being
laid off at the very least you know
there isn't an opportunity to go
elsewhere and get a better paying job or
to get maybe the raise that you were
counting on the entire labor market has
shifted to the opposite side of the
spectrum where people are more and more
concern and we are seeing that chilling
effect come up in consumer spending
that's big economic trouble moving
forward but in addition to labor market
struggle the real the real issue here is
the supply shock and how oil prices and
all the prices that one skyrocketing in
2021 and 2022 were not actually
inflation and I know most people don't
care about this terminology consumer
prices went up and they are looks like
they're staying up so who cares where it
has come from
and the answer is because there's a huge
difference in how it turns out actually
legitimate inflation would be more like
the 1970s which we keep hearing time and
time again only it doesn't happen to be
like the 1970s whereas a supply shock
ends up with what we see today which is
essentially that when especially when it
comes to oil prices when oil prices go
up we have to pay them except in the
most extreme circumstances where oil
prices then do create demand destruction
as I mentioned in a recent video demand
for oil is largely priced in elastic we
have to pay higher oil prices because we
need energy however as we're paying more
for oil prices we have less to spend on
everything else and so the entire rest
of the economy actually suffers for
having to pay more for energy that's not
inflationary that is deflationary over
time because the rest of the economy
suffers by robbing people to pay Paul
and so as the rest of the economy
suffers what happens well businesses in
that rest of the economy have to start
cutting their cost they don't pass them
along to Consumers because consumers
can't afford to pay them so consumers
businesses then cut their cost which
leads to lower income which makes the
problem even worse and round and round
we go it's the opposite of what people
have in mind for oil
prices and you can understand where this
comes from this common perception of oil
being inflation
first of all part of it derives from a
misreading of the 1970s great inflation
many people believe that the great
inflation was in major part if not
entirely due to the oil price shocks of
the of that period when actually it was
these oil price shocks on top of real
inflation you had the real money and
credit creation out of control money and
credit creation that was the underlying
fundamental inflation uh during the
entire great inflationary period and
then on top of that you had these two
massive Supply shocks one in 1973 when
the great inflation was almost 8 years
old by then and one in 1979 up until
1980 and rather than create more
inflation those oil price shocks
contributed to Consumer Price growth at
the initial stage and then actually led
to recessions because while we had the
underlying inflation raging the entire
time oil prices meant we had to pay more
for energy and therefore had less to
spend on everything else so the 1970s
was not inflationary because of oil
prices it was inflationary despite oil
prices that just made the misery that
much more
miserable and then there's this
intuitive part of oil prices as
inflation too because as I just
mentioned you can't get away from energy
costs and so from a business perspective
as your input costs go up and energy is
a huge part of pretty much everything
you do you're going to want to pass
those costs on to Consumers and consumer
consumer prices go up as they pay higher
costs that's inflation and then of
course consumers go to their work and
say I need a higher rate wage rate in
order to absorb all these higher costs
and that gets into what economists and
policy makers fear maybe the most which
is this wage price spiral and the wage
price spiral is simply the way to close
this Loop between higher input cause and
inflationary prices because what's
what's theorized is that as price go up
and businesses pass those costs along to
Consumers consumers are able to absorb
those higher costs across the board
because they're getting paid more in
wage rates and so as they're getting
paid more in wage rates that means not
only will they absorb higher costs it
also means that businesses are going to
going to want to raise their prices even
further because now their wage costs
have gone up in addition to whatever
caused the initial price spike and just
round and round it goes it sounds like
there's an intuitive intuitive process
there that oil prices lead to this wage
price spiral and in Japan which is a
perfect example right now that's exactly
what they're paying most attention to
but that's exactly the wrong thing to
pay attention to because that's not how
inflation works as I've said all along
we only need to look at the monetary
system the credit system we see that in
the credit statistics we see it in the
bond market there was no excessive money
printing no excessive sustained credit
creation throughout the global economy
the us either and because there wasn't
sustained credit creation we have part
of the 1970s we have the supply shock
from oil without the underlying monetary
inflation so that's exactly what we've
seen we've got the supply shock where
people's incomes have fallen further and
further behind as they pay more for
energy and food and other costs they
have less to spend everywhere else and
without the monetary inflation to make
that possible it just leads to more and
more demand destruction we pay more for
oil but we have less available for
everything else and as the supply shot
comes down businesses are unable to pass
along their cost to Consumers consumer
price increases slow down as we've
talked about in the all items less
shelter that has been solidly
disinflationary since the oil price
shock back in
20122 which is telling you companies
have been unable to pass along price
increases their profits begin to become
weaker and weaker and as their profits
become weaker and weaker what do they do
they cut costs in other ways and that's
exactly what we've seen over the last
several months as well really going back
to last summer again as I said before
that means few no hiring hiring free it
means fewer hours worked among those
workers that are still employed and
eventually it means cutting back on
workers and we've seen all three of
those things things develop over the
last you know last little while here so
it's not inflation and it's a consistent
picture of the downside to the supply
shock okay so would would the dollar
stores actually be struggling this badly
if the economy was truly booming if it
was inflationary as everyone says I mean
Family Dollar cutting so many stores
because they can't hold down prices
enough for their customers Dollar
General the big one they've said we're
seeing more customers they keep coming
back to our stores but they're spending
less when they get there because they
don't have enough income to to to keep
up and the reason they don't is because
the labor market is weak and because
they're spending more on Necessities
leaving them less for everything else
which is the downward side of the supply
shock that we see in every historical
instance so rather than be afraid of the
latest CPI or or PPI we go through these
every every couple months where a hot
CPI or high PPI number comes in and
everybody freaks out about inflation
Here Comes oil prices generating
inflationary pressures only to see those
to fade rather quickly over the months
ahead and the reason they fade rather
quickly is because it's not inflation it
is in fact recession we got more
recession signals in the labor market
now we've got recession signals in
consumer spending we've got recession
signals from the dollar stores who tell
us that their customers can't afford to
shop at the dollar stores
I mentioned recession signals we got
three very strong recession signals from
the labor data not the establishment
survey the household survey including
the unemployment rate that's the video
link below as always thank you very much
for joining me huge thank you euro
dollar University members and
subscribers and until next time take
care
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