Dollar stores run into pandemic downturn
As business model flags, there’ll be more products costing more than a buck
Dollar stores, which pay among the lowest wages in the retail industry and often operate in areas where there is little competition, are stumbling in the later stages of the pandemic.
Sales are slowing and some measures of profit are shrinking as the industry struggles with a confluence of challenges. They include burned-out workers, pressure to increase wages, supply chain problems and a growing number of cities and towns that are rejecting new dollar stores because, they say, the business model harms their communities.
This week, Dollar Tree, which also operates Family Dollar stores, said it would start selling more products above $1. The move has broad significance beyond the discount retail industry, analysts say, because it signals that a company that has built its brand on selling $1 merchandise feels the need to shift its model to account for higher wages and an unreliable supply line from Asia.
“It means these issues may be permanent,” said Scott Mushkin, a founder and an analyst at R5 Capital, a research and consulting firm focused on retail.
The troubles follow a year of soaring profits and a period of staggering growth in the industry. Roughly 1 in every 3 stores that have been announced to open in the United States this year is a dollar store, according to Coresight Research, a retail advisory firm, a sign of how well the industry did in 2020.
The business model, which relies on relatively cheap labor and inexpensive goods, is designed to flourish even when its core customers are hurting financially.
While just about every retailer is dealing with shipping and distribution problems, the dollar stores may have difficulty passing on the increased costs to pricesensitive customers.
Dollar General said it had hired 50,000 additional workers between mid-July and Labor Day, but acknowledged in August that its labor costs were adding to expenses.
Still, the higher pay may not be enough to encourage employees to stay on the job. Workers say the stores are chronically understaffed and rely on part-time workers who are given unpredictable schedules and cannot afford the required employee contribution for health care benefits.
In a statement, Dollar General said, “We pay competitive wages, which are determined based on several factors including the relevant labor market.” The company added that “our operating standards are designed to provide stores with sufficient labor hours, and it is not our expectation that store managers should work 70 to 80 hours per week.”
This summer, social media buzzed with photos of dollar stores in Lincoln, Neb., Pittsburgh and other locations, where employees had taped up signs in the front door announcing that they had walked off the job.
“Capitalism will destroy this country,” read one sign in the window of a Dollar General in Eliot, Maine, this spring. “If you don’t pay people enough to live their lives, why should they slave away for you?”