The Recession Just Hit Dollar Stores “People Can No Longer Afford to Shop”

Summary

Family 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

00:00

🛒 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.

05:00

📉 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.

10:00

💰 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.

15:03

🏢 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.

Keywords

💡Family Dollar

Family Dollar is a retail chain that is closing 1,000 of its stores due to financial struggles. This action reflects the broader economic challenges faced by lower-income consumers who form a significant part of their customer base. The company's struggles are indicative of the macroeconomic environment and the impact of persistent inflation and reduced government benefits on consumer spending.

💡Macro Environment

The macro environment refers to the overall economic conditions that affect businesses, including factors such as inflation, interest rates, consumer spending habits, and government policies. In the context of the video, the macro environment is characterized by high inflation and reduced government benefits, which are contributing to the financial struggles of Family Dollar and similar retail stores.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. In the video, it is argued that while consumers perceive higher prices due to oil and other costs, this is not indicative of inflation in the traditional sense, but rather a supply shock. The discussion around inflation is tied to the economic challenges faced by retailers like Family Dollar and the purchasing power of consumers.

💡Recession Signals

Recession signals are indicators that suggest an economic downturn or a period of negative economic growth. In the video, various signs such as declining retail sales, store closures, and shifts in consumer spending patterns are presented as evidence of a potential recession. These signals are used to analyze the health of the economy and predict future trends.

💡Consumer Spending

Consumer spending refers to the amount of money spent by households on goods and services. It is a key driver of economic growth and is closely monitored for signs of economic health. In the video, changes in consumer spending, such as reduced spending at dollar stores, are highlighted as an important recession signal and are linked to the financial struggles of lower-income consumers.

💡Labor Market

The labor market encompasses all aspects of the supply and demand of labor, including employment, wages, and the conditions under which people work. A struggling labor market, as discussed in the video, can lead to reduced consumer spending and economic downturns. It is characterized by factors such as hiring freezes, job losses, reduced working hours, and wage stagnation.

💡Supply Shock

A supply shock occurs when there is a sudden and significant change in the supply of goods and services, often due to external factors like natural disasters, geopolitical events, or changes in prices of key commodities. In the video, the focus is on how rising oil prices represent a supply shock, leading to higher costs for businesses and consumers, and ultimately resulting in less spending power and a deflationary effect on the economy.

💡Dollar General

Dollar General is another retail chain that, like Family Dollar, caters to value-conscious consumers. The company's financial performance is contrasted with that of Family Dollar in the video, with Dollar General reporting a decrease in net sales but still attracting customers, albeit with reduced spending per visit. This comparison is used to discuss the state of the retail sector and consumer behavior.

💡Retail Sales

Retail sales are the total amount of goods and services sold by retailers to consumers. They are a key economic indicator that reflects consumer confidence and spending habits. In the video, the decline in retail sales is used as evidence of a struggling economy and reduced consumer spending, particularly affecting lower-income consumers who are more reliant on dollar stores.

💡Wage Price Spiral

A wage-price spiral is a cycle where increasing prices lead to demands for higher wages, which in turn cause businesses to raise prices further, resulting in a continuous cycle of inflation. In the video, it is argued that the current economic situation does not represent a wage-price spiral, as there is no sustained credit creation or monetary inflation to support such a cycle, and instead, higher input costs are leading to a supply shock and reduced consumer spending.

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