Dollar Tree (NASDAQ: DLTR) announced earlier this month it will, for the first-time, start selling some merchandise for more than $1. Dollar General (NYSE: GD) has been setting prices at over $1 for years.
Regardless, these dollar stores are considered deep discounters, selling mostly cheap goods from China, and if they raise prices too high they'll lose sales. With inflation, a labor shortage, and a global supply-chain problem, dollar stores are in a bind.
Because U.S. dollar stores rely on ocean freight for merchandise delivery from Asia, when oil prices rise -- which they have been -- it costs more to ship goods. Freightos reports that shipping prices have quadrupled since last year.
Not only are prices up; port congestion at Los Angeles and Long Beach also keeps Asia-to-U.S. prices high and makes it difficult to stock stores. Customers can't get the products they're used to getting. There's even a trending Twitter hashtag born from people's frustrations: #BareShelvesBiden. CNN reports that industry experts believe shipping capacity won't normalize until sometime in 2023. As a result, Dollar Tree and Dollar General earnings are down.
One reason for congestion at the ports is a labor shortage. There aren't enough people to unload the goods. And when they do, there aren't enough workers to drive delivery trucks. With a lack of drivers, goods can't get from the ports to the warehouses and then to our local stores or homes.
Dollar stores themselves can't get enough workers in the store. I walked into a Dollar Tree yesterday to look around, and yes, there were empty shelves, but even more prominent were the enormous "help wanted" signs around the store and a makeshift worker sign-up table by the entrance.
Dollar stores, to compete with Walmart, have traditionally kept wages low, meaning they can't compete with any sort of government relief program that pays workers more than or close to what dollar stores do. The deep discounters also tend to limit the number of full-time salaried workers to save money, leading to full-timers often being overworked and part-timers not allowed to get more hours. That leads to tremendous worker turnover.
Inflation rates for the United States are at a 13-year high, standing at 5.4% from last September to this September. Prices are up for food, shelter, transportation (cars and gas), energy, and household furnishings. Dollar stores are caught up in this, meaning they need to raise prices for their market of shoppers who can least afford to pay more.
Higher-end stores earning money
Consumers who shop at more expensive stores are still buying items, even at the higher prices the stores have been charging to offset their rising costs. Dick's, Best Buy, and Williams-Sonoma all reported profits as Dollar Tree and Dollar General earnings are down and their stocks have dropped.
The Millionacres bottom line
The situation for dollar stores isn't great. On a positive note, commercial real estate investors might wish to heed this advice from Brian Laung Aoaeh with Newark Venture Partners: "The pandemic has caused operations that were already inefficient to become even more inefficient. Supply-chain technology start-ups that have created solutions to help companies manage their supply chains more effectively are going to do well in the years ahead."