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Sexy Dollar Store Stocks Thrive, Besting Boring, Has-Been Tech Stocks

At this time last year, Silicon Valley seemed almost invincible. The technology sector had completed a decade of dominance, and the COVID-19 crisis—while providing a momentary scare—had in fact proved to be an economic boon, as so-called pandemic stocks like Zoom and Peloton rounded out the collection of powerful tech companies that had taken over the entire world.

These companies in many ways reflected the aspirations of American elites, collectively constituting a vision of the world as it could be, leaving it to other, humbler businesses—the unloved dollar store, for example—to cater to the country as it was.

Then, the world changed. Rising inflation led the Federal Reserve to raise interest rates, in turn switching off the spigot of free money that for years had given unprofitable tech companies long leashes as they tried to find business models that worked. Without that endless source of easy money, the industry started to look less glamorous, bosses started laying off workers (tens of thousands of them in all), and venture capitalists, rather than endlessly burn cash, began prioritizing boring startups that made or sold or did things people spend money on and which thus could turn a profit.

Over the last year, as of this writing, Netflix is down 56 percent. Facebook (okay, Meta) is down 54 percent. Peloton is down 91 percent. Snapchat is down 87 percent. Uber, which was already down a bunch, is down another 43 percent. Robinhood is down 76 percent. Zoom is down 72 percent.

The free falls have been steep enough that the once high-flying stocks now look less appealing than those of simple discount titans like Dollar General and Dollar Tree, which are benefiting from the same economic conditions that are hurting Silicon Valley. Dollar Tree is up 68.6 percent over the last year and 125 percent over the last half-decade, and Dollar General, while only up 8.4 percent over the last year, is up 236 percent over the last five years. If you had bought any of those tech stocks above five years ago—or, if they were first publicly listed more recently, when they first started trading—you’d be doing worse by comparison today. Much worse:

  • Zoom: +69.06%
  • Netflix: +24.97%
  • Facebook: -5.47%
  • Snapchat: -29.25%
  • Uber: -41.97%
  • Peloton: -61.61%
  • Robinhood: -74.68%

This is what an inflationary economy looks like. Even though unemployment remains low, Americans are feeling stretched to their financial limit (and saving less) as prices rise seemingly everywhere. Housing prices are ridiculous, groceries are up more than 12 percent since this time last year, and even Dollar Tree has ditched its one-dollar promise, though the name remains.

One way many are dealing with the crunch is by buying more of their groceries at discount chains like Dollar General and Dollar Tree. Spending on groceries at such stores increased by 71 percent between October and June while actual grocery stores dealt with a 5 percent spending decrease, according to data from the analytics firm InMarket cited by the Wall Street Journal.

Dollar Tree—which owns Family Dollar—declined to comment, and Dollar General pointed Motherboard toward its May earnings call, in which company executives said that they expected wage increases to become more “manageable” this year and that they had started to notice more people starting to do more of their shopping at the company’s stores to try and take advantage of the company’s dirt-cheap prices.

“We haven’t felt better about where we are,” said CEO Todd Vasos.

At another point in the call, Vasos spoke specifically to the price pressures his customers were grappling with every week, and how Dollar General stood ready to take advantage as it has during difficult periods in the past (emphasis ours):

“We knew that the consumer was going to get tighter in 2022, just because of the lack of stimulus compared to last year. But I would tell you that because of other pressures, more inflation coming through on her everyday needs as well as that fuel that I talked about, has quickened the pace a little bit. So we believe that she’ll flee even further to value as she moves into the back half of the year, especially as she gets to that holiday time frame, I believe that you’ll see that. So we’re very prepared for that. The last thing I’ll also mention that shows us that she is starting to move that way a little quicker is, one is, she’s coming more often in those basket, unit sizes are a little bit smaller. That’s the true sign and also the $1 price point that we are really pushing and getting behind has really accelerated as well, and we’re seeing that. So that would tell you that she’s trying to make ends meet, and we’ll be there for her because that’s what we do best.”

That same month, Dollar Tree’s executive chairman, Rick Dreiling, made clear on his company’s own earnings call that it was similarly well-positioned to thrive in the worsening economy.

“We are in the midst of a very challenging time for consumers, as many are living paycheck to paycheck,” Dreiling said. “They’re facing the highest inflation since the early 1980s, record high gas prices, the effects from the pandemic, geopolitical uncertainty, and much more. In tough times, value retail can be part of the solution to help family stretch their dollars to meet their evolving needs.”

These sort of companies argue that they provide real value to cash-strapped Americans who are struggling to get by. But they’ve long faced accusations they harm the communities in which they reside, and even Dollar Tree doesn’t argue that it can or should serve as a complete substitute for grocery stores. Rather, the company sees itself as a “complement” to groceries,  a spokesperson recently told the Journal. That makes more sense, as the company’s grocery pitch is that it offers “frozen fruits and vegetables, along with sugar-free options, fruit juices, nuts, beans, whole wheat products, eggs and milk”—not exactly a balanced diet.

Dollar General, however, plays the grocery card a little more aggressively, noting that 2,300 of its 18,000-plus stores offer fresh produce and that it hopes to get that number up over 10,000 “in the next several years.”

“While Dollar General isn’t a full-service grocer, we consider ourselves today’s general store by providing nearby and affordable access to daily household essentials, including the components of a nutritious meal,” a spokesperson told the Journal.

Perhaps five years from now, the tech companies will leapfrog the discount giants once more; perhaps Amazon, stock for which is up 174 percent over the last five years, will find a way to take over this space as it’s taking over every other. Whatever the case, there is a lesson to be learned—or several of them—in companies making money by selling things people need to live at prices they can afford, however bleak that may in some cases be.

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