‘Everything going wrong:’ Dollar stores hit a pandemic downturn
Sales slow, profits shrink as industry struggles with confluence of challenges.
Sandra Beadling was fed up with the 70-hour workweeks, the delivery trucks running days behind schedule and the wear and tear on her knees from all the stooping to restock the bottom shelves.
As the manager of the Dollar General store in Wells, Maine, Beadling had tried to hire more help. But that was a tough sell when Walmart was offering $16 an hour and her store was paying $12.
Beadling, 54, had spent long stretches this summer as one of only a few workers in the store, tending to the register and trying to help shoppers. She had pleaded with her managers to allow the store’s part-time workers to have more hours, but to no avail.
One night in August, Beadling closed up the Dollar General at 10, got home at 11:30 and then left her house at 4 a.m. to be back at the store for an inventory check. “I was so tired I couldn’t find words,” she said. She sent her assistant manager a text saying she had quit and then blocked her co-workers’ numbers so they couldn’t call back and persuade her to stay.
“It wasn’t sustainable,” Beadling said.
Some wonder whether the same can be said for the unbridled success of dollar stores and their business model, which has benefited from the prevalence of poverty and disinvestment in the inner cities and rural America. 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.
In late September, 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. The strategy was honed during the high unemployment and wage stagnation of the Great Recession of 2008.
But dollar stores are not as well equipped for the surreal economy of today, when workers like Beadling are quitting in protest and a single coronavirus case on a container ship can cause a two-month delay in getting Chinese-made merchandise to the United States.
“This is another case of the pandemic laying bare the underlying vulnerabilities in how we’ve set up our economy,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance, an advocacy group that is critical of many large corporate retailers.
While just about every retailer is dealing with shipping and distribution problems, the dollar stores may have difficulty passing on the increased costs to price-sensitive customers. Dollar Tree said it expected as much $200 million in additional freight costs this year.
In an August conference call with analysts, Dollar Tree’s chief executive, Michael Witynski, recounted how one of the shipping vessels the company had chartered was denied entry to a Chinese port after a crew member tested positive for the virus. The ship had to change crews in Indonesia before returning to China.
Mushkin said of Dollar Tree: “They have everything going the wrong way.”
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. Analysts say some of these additional expenses are driven by the pressure to raise wages.
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.