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Inequality

What a dollar store reveals about US inequality

There is a bidding war between two rock-bottom retailing chains over Family Dollar, a store serving many low-income communities in the US. It's a story about the richest and the poorest members of the US society.

The branch of Family Dollar where Wilfredo Rosario shops regularly lies under the rusting tracks of an elevated subway, close to his home in the South Bronx. The New York neighborhood is part of the poorest congressional district in the United States. "If this store is closed, it would have a great effect on me personally," Rosario says. "it would be more expensive for me and my family," he added.

Most customers of the low-end retailer are not aware of a multi-billion bidding war going on behind the scenes, which could affect people like Rosario. First, Family Dollar announced in late July that the discount variety store Dollar Tree would acquire the company for $8.5 billion (6.4 billion euros).

Then Dollar General, another low-end retailer, offered to pay even more. But in mid-August, Family Dollar's board shot this offer down due to regulatory concerns. The end is still unclear.

Local to global

While chief executives and investors argue over billions of dollars, many poor in the US organize their lives around one-dollar-prices. Streets in low-income New York neighborhoods such as Spanish Harlem, the South Bronx or East New York are lined with stores that offer shampoos, slices of pizza or batteries for 99 cents or one dollar.

 New York USA Family New York USA Family Dollar Mann mit Kind New Yorker Stadtteil Spanish Harlem - August 2014.
Ein Anwohner der South Bronx mit seinem Sohn vor einer Filiale des Billig-Einzelhändlers Family Dollar

"If this store is closed, it would have a great effect on me personally," says Bronx resident Rosario

"Low-end retailers have been around for as long as people have lived in cities," says Louis Hyman, economic historian at the Cornell University School of Industrial and Labor relations. "The dollar stores emerged in the 1950s and 60s. What's novel about them was that instead of being stores run by Ma and Pa, they started to have national, and then global supply chains," Hyman told DW.

For instance, 40 percent of the inventory of Dollar Tree, one of the two bidders for Family Dollar, comes from China, Hyman pointed out.

However, each chain of stores is different. While Dollar Tree provides mainly party goods and knick-knacks for one dollar or less, Family Dollar sells everyday necessities such as detergents, food or even prescription-free medicine. Most items are more expensive than one dollar; at the end of the day, the "Dollar" in Family Dollar stands for a cheapest-of-the-cheap retail concept, not the actual price.

"It just has everything. The price is awesome, you can't beat that," Bronx resident Rosario stressed, highlighting that the stores also accept food stamps "which is great." According to the company data, a large portion of the customers at Family Dollar receives some sort of government assistance.

Geschäfte Spanish Harlem New York USA - August 2014.
: Geschäfte im New Yorker Stadtteil Spanish Harlem; Passanten

Streets in low-income New York neighborhoods such as Spanish Harlem are lined with low-end retail stores

Profiting from crises

Dollar stores profit from crises; economic hardships tend to push more potential shoppers toward rock-bottom retailers. "During the great recession - following the 2007-2008 financial crisis - when everything else went down, the stocks of dollar stores went up, because Americans had to buy there. And that was great for investors," Louis Hyman explained.

Now, the stock market has recovered, and household net worth has rebounded back to its pre-crisis value. This has profited the nation's top one percent, as well as its upper and upper-middle class who are shareholders and house owners.

However, the country's poor have mainly been left out of the economic recovery. Wages in the US have remained stagnant and government support has faded; these are measures that are particularly important for low-income households.

Family Dollar's annual report reflects that. Though the company is still profitable, profits have dropped and do not meet Wall Street's targets anymore. For its competitor, however, "Family Dollar seems like a great opportunity, because they sell about $10 billion worth of goods every year, and they have much lower profit margins than Dollar Tree or Dollar General," economic historian Hyman noted. "What Dollar Tree and Dollar General want to do is buy that revenue and bring it in line with their own profit rates," he stressed.

Geschäfte South Bronx New York USA Family Dollar - August 2014.
Eine Filiale des Billig-Einzelhändlers Family Dollar im New Yorker Stadtteil South Bronx

The branch of Family Dollar in the South Bronx lies under the rusting tracks of an elevated subway

'New inequality'

For the inhabitants of low-income neighborhoods such as the South Bronx, it is crucial to have access to low-priced retailers. However, Hyman says, "if Dollar Tree or General Dollar takes over Family Dollar, they'll end up closing many of the Family Dollar stores. This is the new inequality in the US where hedge funds from Wall Street make billions on Dollar Store closings."

When Dollar Tree announced its intention to acquire Family Tree in late July, the company said it expected to save about $300 million (223 million euros) annually through synergies over the next three years.

Synergies often include closing branches in less profitable locations; particularly food, which has a high demand in low-income neighborhoods, but has a low profit margin. On the same day the merger was announced, Family Dollar's share price jumped by roughly 25 percent.

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