Family Dollar Closing 370 Stores Because of Economic Recovery?

Image: Family Dollar Closing 370 Stores Because of Economic Recovery?

Tuesday, 15 Apr 2014 09:49 AM

By Nick Sanchez

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Family Dollar announced the closing of 370 stores last week after five years of solid growth driven by the recession. Some analysts argue the closing of the stores signal a solid economic recovery, while others say the recovery's anemia will keep families hunting for bargains.

As The Week reported, many economists maintain that the worse the economy, the more ultra-discount stores like Family Dollar, Dollar General, and Dollar Tree profit. This appeared to be true during the recession that began in 2008, as the three chains opened a total of 5,700 new locations in the last five years.

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But now that Family Dollar has announced closings and layoffs, experts are evaluating the discount sector for signs of weakness, which could be evidence of a broader recovery. That is, if families are now feeling more confident in their wallets and purses, they are prone to seek out midrange retail outlets instead of the dollar stores.

The jury is out about whether the conventional wisdom still holds about dollar stores' inverse relationship with the broader economy, as Americans have seen a very weak economic recovery.

Even though they were expanding at a rapid pace for the past five years, dollar stores' profit margins didn't bloom until after the recession, in 2010 and 2011. This fact flouts the conventional wisdom and reminds economists that this last recession prompted many mid-range retailers to slash their prices to retain customers — much to the detriment of the ultra-discounters.

Additionally, Family Dollar's layoffs were announced alongside new, even deeper discounts for 1,000 of its products. Altogether, it looks more like Family Dollar is attempting to give itself a competitive edge, not that the chain is spiraling downward.

The number of long-term unemployed is still higher than it has been at any point between WWII and 2008, and at the same time, households are still paying off debt — meaning they're still seeking opportunities to spend less.

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