"Things Are Worse" - Dollar Stores' Startling Admission: Half Of US Consumers Are In Dire Straits

Tyler Durden's picture

If there was any confusion about how the lower half of the US consumer class is doing these days, it was quickly lifted following today's distressing earnings calls of dollar store titans, Dollar General and Dollar Tree.

Discount retailer Dollar General said it was cutting prices on its most popular items such as bread, eggs and milk, intensifying a price war among already commoditized products with retail giant Wal-Mart Stores to win back falling market share. It shares fell the most on record, plunging by 18% after the company missed on revenue, blaming aggressive competition, lower food prices and reduction in SNAP, or food stamp, coverage in 20 key states.

It's larger ultra-discount rival Dollar Tree Inc also reported lower-than-expected sales, sending its shares down 10%, the biggest dollar drop decline since going public in 1995.

 

Dollar General, whose product selection prices are already among the lowest in the country, cut prices by 10% on average on about 450 of its best-selling items across 2,200 stores during the quarter, CEO Todd Vasos said on a conference call. It's just the beginning: quoted by Reuters, he said the company expects to extend the price reductions to more product categories and markets.

One factor for the declining operations is the aggressive cost-cutting by retail giant, Wal-Mart, which recently reported better than expected results. It now appears WMT solid performance was mostly on the back of margin reductions and major cost-cuts in an attempt to win market share from its lowest-priced competitors.  As Reuters notes, Wal-Mart's strategy of cutting prices has helped the world's largest retailer to boost sales in the latest two quarters.

"Wal-Mart's been doing better lately, lowering prices, and that's been a concern that (it) could impact dollar stores," Edward Jones analyst Brian Yarbrough said. "Historically, it hasn't as much but maybe we are seeing something different here." Retailers are also grappling with a drop in grocery prices, further cutting into margins. Dollar General said prices for milk were down about 8% and for eggs over 50 %.

But the biggest factor by far impacting the performance of both dollar stores was the sharp, adverse turn in the purchasing power of the lower half of US consumers.

Both Dollar General and Dollar Tree said pressures on their core lower-income shoppers contributed to the same-store sales misses that both retailers reported. On today's conference call, Dollar General CEO Todd Vasos said that he was surprised to admit that while on the surface things are supposed to be getting better, the reality is vastly different for low-income US consumers:

I know that when we look at globally the overall U.S. population, it seems like things are getting better. But when you really start breaking it down and you look at that core consumer that we serve on the lower economic scale that's out there, that demographic, things have not gotten any better for her, and arguably, they're worse. And they're worse, because rents are accelerating, healthcare is accelerating on her at a very, very rapid clip.

Making matters worse, he added that the company's core consumers base, 65% of which is comprised of lower-income shoppers, has been impacted by the recent reduction or elimination in foodstamps: "now couple that in upwards of 20 states where they have reduced or eliminated the SNAP benefit, and it has really put a toll on [the core consumer]."

He elaborated that the reduction in foodstamps benefits promptly filtered through the entire business model, and culminated with Dollar General being forced to cut prices to remain competitive.  This is what he said:

That SNAP benefit reduction and/or elimination happened in April. That was the kickoff, and you could see it immediately in the numbers. So I believe that those are the things that are affecting her today. Again, our core customer, and by the way, we've seen this play out before. If you dial the clock back to October of 2013 and coming into November of 2013, when the last large SNAP benefit reduction happened, it happened almost exactly the same way on our comps and in how we saw traffic. Obviously, we're up at a little higher level at that time, but rest assured, that our traffic slowed tremendously then, very similar to as it did now.

 

The difference here is we're going to take aggressive price action to get that consumer back in the store. She needs a little motivation to get back in. We need to help her stretch her budget for a time period until she figures it out. Our core customer is very resilient. They'll figure it out over time, but they need a little help as they tend to now try to figure out how to make ends meet with less money during the month.

Dollar Tree, which said that fewer than 5% of its customers were SNAP recipients, echoed its competitor when explaining the stress being felt by its own shopper base. As CEO Robert Sasser said on the call, "the consumer is still seeing a lot of pressure on cost increase with rent and just food and healthcare and taxes and all the things. So we see them as still being under pressure. I think that's the number one issue that we see out there."

But back to the Dollar General call, where analysts were incredulous and were wondering if the deterioration in spending may have been the result of, wait for it, the recovery and broader consumer improvement, leading to "trading-up" to higher price point competitors. The exchange was amusing:

Q. I understood the issues with SNAP and deflation, but is there a piece of this that's just related to the consumer job – labor market getting better, so that consumers spending a little bit better and they're trading up? Is that not possible?

 

Vasos: I am not going to say, it's not possible, but we have not seen that in our data. Once again, remember that over 60% to 65% of our sales and consumer base is on that lower demographic area that – of the economic scale. And when you keep that in mind, her life hasn't gotten any better. And that's really that customer that we're serving the most, and that we're intent on making sure has enough money and enough products inside her house to be able to feed her families.

And then there are soaring healthcare and rental costs:

[The] core consumer, I tell you, has gotten no better as far as her economic well-being. Matter of fact, she tells us, while we're out in the stores or even through all of our panel data that we do, that while things haven't gotten a lot worse as far as income coming in, other than the recent SNAP decrease, my expenditures are going up at a very rapid rate.

 

Healthcare is one of the big ones, because most of our consumers, while she may be working, doesn't have healthcare, and we all know that she's having to now pay for this healthcare or be taxed on it, right? So that is starting to really play against that low-end consumer right now, and it will continue to play against her. You couple that with those rents that we talked about, those increased rents are real, and in many parts of where we serve our customer, the affordability and availability of rental units are getting more and more scarce, which is driving up prices. And we're seeing that because most of our core customers cannot and do not own their own homes. 

The punchline:

And when we're out in stores and we drop prices like we do, I can tell you, I've been out in stores in the middle of the aisle and heard customers come up to our store manager in tears and thanking them for being there and thanking them for the prices that we offer in a real convenient nature for her, where she can walk to the store, because she can't afford anything else. When you hear that, that really brings home where this core customer is.

We wonder if this particular tearful customer would also be accused by the president of peddling fiction.

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Boris Alatovkrap's picture

Dire Strait - Sultan of Swing

Best guitar solo EVER!

WhackoWarner's picture

WHO downvoted that Boris.  Not me.

I logged in to agree, sort of.  Among the 10 best anyway.  Desert island with only a few picks? Yeah  Dire Straits is right there.  Stevie Ray?  Well come on.  Hendrix?

 

there are a few we can listen to while walking to our doom.

 

espirit's picture

Food prices escalated with the price of oil, least we forget.

Now that oil is down roughly 2/3 in price, shouldn't food be the same or is that 2% inflation caching up.

BooHoo CEO's.

Bill of Rights's picture

If you recall the scam was the Bush tax cut / refund the oil and food rose to suck that tax cut refund right out of your pockets.. It was an artificial inflation spike that never went back down.

Boris Alatovkrap's picture

Joe Walsh and Don Felder - California Motel by Eagle

David Gilmour - Anything by Pink Floyd

Alex Leifson - Anything by Boris' favorite Rushian Band!

Eddie Van Halen - he is not sometimes play same song as rest of band, but is very fast finger

Rick Nielson - Anything by Cheap Trick and also is dress very fine

Billy Gibbon - La Grange by ZZ Top

Also is many other great guitar solo, but these are make Boris very happy when hear!

Boris Alatovkrap's picture

Lindsay Buckingham - Live on 18 string for Looking Out For Love!

Richard Chesler's picture

Hope and Change mutherfuckers.

Richard Chesler's picture

Zappa - Joe's Garage.

He was a very nice boy, he used to cut the grass...

 

Boris Alatovkrap's picture

You are fan of Central Sca-rutinizer?

RaceToTheBottom's picture

Boris, Enough with the drug addled musicians....   Is that redundant?

Will no one weep for the Dollar store customers, especially knowing that another firm bites the dust under the crushing wheels of Walmart.  Have you forgotten what it was like in the soviet mess or were you a fake comrade who shopped at GUM?

And soon all but the 1% will be buying at the evil firm Wallmart.

Boris Alatovkrap's picture

Dollar Store? That is real thing? Boris is think it joke.

Fish Gone Bad's picture

It is quite real.  This whole "market share" thing is a myth.  The people shopping these stores are not rolling in money and just happen to be choosing Wal-Mart or Dollar Store, they are just desperate.  I have been in Wal-Mart and people are phoning each other comparing prices on what to buy that week.  So sad.

Lore's picture

...But they have plenty of money for Pokemon Go. 

If these businesses are not viable without a customer who is predominantly government-subsidized, then that is a flawed business model, and they deserve to go under -- which they will -- eventually.  Much more important should be a new set of policies to encourage smaller government, debt elimination, domestic job creation and capital formation.  A strong middle class is the hallmark of a strong nation. 

Boris Badenov's picture

And rising healthcare costs don't apply, since they don't pay any.

I am more equal than others's picture

 

 

Eric Clapton and Steven Winwood - Voo Doo Child - Live NY

11b40's picture

Clapton & Duane Alman on the Layla album.

Duane Allman & Dicky Betts.

Keith Richards....more memorable licks over a lifetime than anyone.

dark pools of soros's picture

it's a big gumball machine.. put in your quarters and get some random colorful shit

Seek_Truth's picture

People need to get back to the basics, like they did in the Great Depression:

My Dad and his brothers hunted, trapped, and fished to put food on the table during the Great Depression.

His sisters did laundry and were seamstresses to make money during the Great Depression.

My Mom's Dad worked in the coal mines, and after work, he was a bare knuckle boxer during the Great Depression.

WE don't need another "firm."

WE need to dig down deep, like our ancestors, and focus on SURVIVAL.

PS- No one survives without Christ as their savior.http://www.biblestudytools.com/topical-verses/salvation-bible-verses/

 

daveO's picture

Hunting and trapping is a lil different these days. Now, they tap your phone/internet and steal your savings. Believe me, i've been deflecting their attempts for 7 years. I froze my credit in 2009, everyone should do this.

Seek_Truth's picture

Amen, bro.

Some things are learned and followed.

Other things are ignored.

Most won't make it.

ACES FULL's picture

Meat Trapper,who used to comment here,has some great vids on survival trapping,among many other useful things,on Youtube. Speaking of trapping during the Great Depression,three muskrat hides(at 2.00 each) would buy a fine .22 single shot rifle(5.00-6.00 bucks) back then and the meat is also good eating. Compare that to the price of a similar rifle today,shows what has happened to the value of our paper currency. I often wonder if maybe I was born in the wrong time period.

Seek_Truth's picture

I always liked Meat Trapper.

He spoke the truth.

Is he no longer posting?

 

ACES FULL's picture

Don't think he has posted for several months now. I check his stuff on Youtube regularly though. I'm not set up to comment on Youtube,wouldn't bring any questions regarding ZH up there anyway. You can just type Meat Trapper or go to Meattrapper.com to find him. Worth the effort imo. Seems like a good genuine guy.

ACES FULL's picture

That's him. You from down our way?

Seek_Truth's picture

No- not from down your way.

We Appalachians have our own ways.

We hunt, trap and fish, too.

Using our own ways.

Brother.

ACES FULL's picture

I'm not that far from Southern Appalachia. Not as far South as Meat Trapper although the mountains do run almost to Birmingham. Gotta get some sleep.

Later Brother.

TheSkipper1967's picture

Yes, I also liked his comments.  There a many others that I miss reading.  I have learned a tremendous amount from them and current contributors.  Funny how we comment on the good old days of ZH.  

CJgipper's picture

I have enough competition on the hunting grounds, FU.

ACES FULL's picture

If you're good at it then a little competition shouldn't deter you. We need ALL the sportsmen/women we can muster if we are to have any hope of maintaining our lifestyle/heritage. The more the merrier.

Seek_Truth's picture

From what I gather, those "hunting grounds" are far removed from my Appalachia.

JRobby's picture

Except that all the fish and game are gone. Water and land fouled. When there is no water to farm it's lights out.

Keep your lovely stories in mind as you are riding the box car to the disposal camps.

PositiveChanges's picture

You know not of which you speak.

All around us, never reported by the mainstream, rarely reported by the alternative, the earth is making a comeback.  So much so the evil ones that actually control us have to intentionally harm things to keep up the lie.

All over the earth species are making a comeback, from Monarch butterflies, horseshoe crabs all the way to wolves, polar bears and even a couple extinct species reappearing too.

Do yourself a favor, research it and remove all the hedging and obfuscation.

On a micro level, I put four pieces of orgonite, which combats the radiation and emf assaulting us from every direction, and my yard is a veritable zoo.  And I live in the middle of a very large city.

I decided last year to actively seek the good on this earth.  Wallowing in the reality of our present situation may allow me to "prepare," but it was darkening my soul.  Lucky for me, actually for us all, many awesome things are happening.  Thanks to our MSM and Ivory Towers, one just needs to search a little harder.

Offthebeach's picture

Here in costal Massachusetts, in the morning you have to kick your way to the car through rabbits, turkey.  Honk the horn to get the deer to move.

 

WOAR's picture

Hunting and trapping is illegal in some places.

Working from home and selling your own products is illegal in some places (look up how certain areas criminalize garage sales).

Working from home being a pornstar is the new "boxer as a second job."

The idyllic world you saw in the past has long been destroyed, gutted, and desecrated. It's dead...and getting away from the carcass has been made impossible for most people.

Cloud9.5's picture

While I up voted your sentiment, the real truth is that if the cities empty out in the hinterlands looking for food after a few weeks of this and you will be lucky to find a butterfly alive.  For years I hunted River Ranch here in central Florida.  The hunting association restocked the area each year and within a couple of weeks of opening weekend it was pretty well hunted out.

 

If we had any forward thinkers at all, local governments would be encouraging victory gardens.

UnacknowledgedX's picture

While I agree there is a lot we can do to tighten our belts, and improve our productivity; it would help tremendously if all the stolen wealth was returned to those individuals (or their descendants) from whom it was stolen. Specifically, $2Quadrillion since 450BC, according to the Acting General Counsel, IBRD.

crazzziecanuck's picture

Yeah, uh huh.  Let's take 12 million people from Los Angeles and have them all go out and hunt and trap.  See how quickly things get depleted.

 

As for this "no one survives without Christ", well, I would say 1.3 billion Indians and 1.1 billion Chinese would beg to differ...

roadhazard's picture

If the grocery stores stop recieving food there will be no game in America within a month.

 

Also ... crank it up

https://www.youtube.com/watch?v=AWmtxrdYPAI&list=RDAWmtxrdYPAI#t=0

Kantaka's picture

clickbait, keeps changing his name

biblicisminstitute ffs...

Proofreder's picture

Lou Reed - Heroin

Slash/Fergie - Sweet Child 'O Mine

https://www.youtube.com/watch?v=zzdYxgSZztY

Warning - contains earwigs

OTOH, the Alchemy Live version of the Sultans of Swing is the best ever, IMNSHO !

https://www.youtube.com/watch?v=8Pa9x9fZBtY

(only 75 million views, so far)

ACES FULL's picture

Boris,I am very disappointed in you. Give some love to the late great Stevie Gaines from Lynyrd Skynyrd will ya. FREE BIRD.

Whatta's picture

Boris, ya have to throw Joe Bonamassa in the mix. Check out some youtubes of him lighting up  Royal Albert Hall.

Elliott Eldrich's picture

Nice list there, Boris. I'm surprised you didn't include Jeff Beck's "Wired" and "Blow by Blow" albums, but if you do enjoy his work then I suggest you check out "Population Override" by Buckethead (it's on YouTube.)

WVHillbilly's picture

Vernon Reid, cult of personality

WVHillbilly's picture

Satriani, surfing with the alien.

Boris Alatovkrap's picture

Ah, yes, Joe Satriani, most distinctive style. Boris is especially love lyrical contribution:)

Implied Violins's picture

Best I've ever heard live: Al Dimeola.

You won't find *his* records in a fucking dollar store.