Dollar Tree, Dollar General and Five Below bit the dust this week. These are large retail chains, located in rural areas of the United States, specializing in deep discounts. It is a dollar store model that sells a wide variety of items at low prices. The tentacles of Chinese discount retail have caused panic among these companies.
In the 90s, the astonishing affair of the “one hundred pesetas” or the “twenty duros” has prospered. A marketing genius who, under the banner of “Everything for a hundred pesetas”, sold everything unimaginable, and few things at the promised price. Neighborhoods could have two or three on the same street.
The same business model survives in the United States and less populated areas; but in a significant way, in large stores that offer great discounts, under the principle of everything for a dollar. For Dollar Tree and Dollar General have been a drama these daysSince the presentation of their accounts at the end of August, the share price has fallen by 30%.
Dollar Tree, Dollar General and Five Below did the most painful thing a public company can do: issue a profit warning.. All three companies lowered their profit forecasts. They blamed declining consumption. All three companies said they saw hardship in American households. And those are big words for a country where family spending is the main driver of GDP growth.
The unique feature of these types of stores is that their customer base is low-income. Dollar Tree COO Mike Creedon told analysts that its largest, lowest-income customers were “under pressure.” He added: “We are not pleased with our second-quarter results, nor do we need to revise our full-year outlook, but this updated outlook reflects how the challenging macroeconomic environment continues to put pressure on our customers.”
This scenario for the country of leading indicators amounts to sounding the alarm about recession for the entire economy. But something is seriously wrong. Walmart and Target, two other retail giants, have not suffered the same drop in consumption as discount chains..
Dollar stores have weathered economic storms well in the past. Middle-income earners tend to flock there to shop, and their customer base is growing. In the face of this mystery, all signs point to Temu, the e-commerce giant, quietly entering the United States.
Amidst this mystery, all indications are that Temu, the Chinese e-commerce giant, has quietly entered the United States. In two years, its market share among discounters has grown from zero to 17%, according to consumer data analysis firm Earnest Analytics. Over the same period, Dollar General’s market share has fallen from 63% to 52%. Dollar Tree’s stock has fallen 6 percentage points to 19.5%, as highlighted in a recent article. Financial Time.
Temu sells household items, clothing and toys at low prices, making everything cost a dollar, but online. PDD Holding has masterfully avoided trade tensions between China and the United States. Their small, cheap products can avoid tariffs. The United States and Europe do not impose tariffs on imports when the amounts are small. Since its launch in the United States two years ago, it has made significant advertising investments, increasing downloads of its app. Temu and its low prices offer a hedge against inflation for the low-income American consumer and save them a trip to the store.
