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What Dollar Tree's purchase of Family Dollar says about the U.S. economy

What Dollar Tree's purchase of Family Dollar says about the U.S. economy

Posted by Liliana Castaño on July 31, 2014

It seems a deal to define an era: Dollar Tree announced on Tuesday it was spending roughly $8.5 billion to acquire a struggling competitor, Family Dollar, creating a low-end behemoth with 13,000 stores and $18 billion in sales.

Amid a slow recovery for poor Americans who are also facing cuts to federal programs like food stamps and unemployment benefits, the creation of a mega-dollar store might be interpreted as a grim sign of diminished consumer expectations. But the reality is that the economic outlook has improved for poor Americans as well as rich Americans, and the Dollar Tree deal represents the normal jockeying of businesses competing for sales.

It’s nearly impossible to attribute shifts in retail patterns to any one cause, such as cuts in government programs, said National Retail Federation chief economist Jack Kleinhenz. “I think it’s difficult sometimes to pinpoint a cause and effect and say ‘this must be related to some policy or market shift,’ ” Kleinhenz told the Washington Examiner.

Two-thirds of Americans shop at dollar stores, according to Todd Hale, a vice president for consumer and shopper insights at Nielsen, up from 60 percent in 2001. Only half frequent “warehouse club” retailers like Sam’s Club, while three-quarters shop at “supercenters” like Walmart.

Dollar stores have grown rapidly — the top three chains have added 10,000 stores in the past decade to 24,000 total, according to the Wall Street Journal — because they’re attracting more consumers, not because the economy is hollowing out the middle class and forcing low-income Americans to seek bargain basement prices.

Consumer sentiment is up across all income brackets, including the lowest, according to the Conference Board.

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