Hello! I genuinely hope that you are doing well. Today’s edition is PACKED with information that I think some of you will really enjoy. Just as a heads up, I have written way too much in the first section, so if you enjoy cold hard facts and would like to know about something new and fascinating, this is your section. If you are in a rush, you could probably read the second and third sections to learn something new and get entertained fast, and then come back later for a deep dive. Regardless, I hope you enjoy this edition 😃
In Today’s (3rd) Edition of “Element, by Arsh“ -
The problem with Dollar Stores (Family Dollar, Dollar Tree, etc.)
Investors Seem To Have Gotten Enough From The AI Hypetrain & It Might Be A Good Thing…
Ich fange neu an, eine neue Sprache zu lernen. That’s German for “I am restarting to learn a new language” (according to Google Translate)…
Why Are Dollar Stores Struggling? And Can We Fix It?
The three big Dollar Store chains - Dollar General, Dollar Tree, and Family Dollar (Owned by Dollar Tree)
Family Dollar is closing 600 stores in 2024, and Dollar Tree (Owns Family Dollar) shares plunged 20% after the company reported earnings citing “immense pressures“ on its low and middle-income customer base. Since Dollar Tree owns Family Dollar, and the fact that both companies are struggling would mean that it’s a company problem and not a systemic problem, right?
Well, yes and no! Yes, Dollar Tree has made some missteps along the way which has hurt itself and Dollar Tree as well, but the problem doesn’t end with them. Dollar General, which is the more premium version of these dollar stores is also struggling and a few days ago, after the company reported its earnings and cut its full-year forecast, the stock nosedived by almost 30%. After seeing all of this happen, anyone would wonder, “What went wrong?“
I think there are 5 main reasons that can explain the downfall of dollar stores -
Inflation - This should come as no surprise that inflation has been detrimental to dollar stores. Contrary to what the name suggests, you will very rarely find things that cost $1 or less in these stores. That is because when these companies first started in the mid-1950s, you could get a lot of things with $1. But now, due to inflation, you can barely find things that cost that less. So, when we started seeing inflation rise during and after the COVID-19 pandemic, we witnessed that the consumer was struggling (Because of lost jobs, and high inflation) as well as the products were now starting to cost more for dollar stores to buy from suppliers. This started to hurt the already slim margins of the business. Because they could not increase the cost of the product (or else the consumer would go and buy at some other place), they continued to bear this cost, hoping that inflation would get under control ASAP. But, that did not happen, and now the management has to start closing down stores that are not making a profit!
Image Credit - Wolf Street
Shoplifting - Also known as “Retail Theft“, it has historically started to get more and more common during times when inflation and unemployment are high. The times following the pandemic were a perfect mix to facilitate the increase in Retail Theft. Not only that, the law in some states of the U.S. considers thefts of less than $1000 a misdemeanor (petty crime) and carries a jail sentence of up to 1 year. While this might not seem like the biggest problem, it is enough to explain why crimes like these get higher during the winter seasons. The homeless population needs someplace warm to survive the winter and getting a jail sentence for 6-12 months is sometimes unfortunately their best bet. But, coming back to dollar stores. Another reason for high retail theft for dollar stores is the fact that they are poorly staffed and primarily deal in cash. This makes them the perfect target for shoplifters because they can just walk in, threaten the employees (often only 2 employees for the entire store), and go back out with either a wad of cash or necessary products for their survival.
Poor Management - As difficult as the business model is to maintain, the worse the management of dollar stores has been. Very poor and unthoughtful investments made by the company are one of the biggest reasons that stores are in a state of despair right now. For example, when Dollar Tree bought Family Dollar in 2015, it decided to NOT close the underperforming stores as well as the ones that were highly unprofitable. At that time, their reasoning for that was that they would be able to turn around all the stores so that they would be profitable independently. This was a fairly ambitious goal and a massive risk, but companies take risks to generate profit, and I would assume that the executive team pitched the idea precisely the way I described it. This bet did not work out eventually and by the time they realized this, it was too late and the company had spent way too much money for little to no return, which naturally hurt their profits! In hindsight, we can say that they made a misstep, but this would’ve been seen as a decent strategy at the time. Nevertheless, it was a misstep and it did cost the company massively! This was just one example of mismanagement, but over the years, decisions like this have compounded and have had a detrimental impact on the company!
Image Credit - PennLive.com
Competition & Cannibalization - This is another big reason for the downfall of dollar stores actually something they can’t actively control - The growth of companies like Walmart, Target, and TJ Maxx in these communities. For most of their life, these companies have set up bases in cities and suburban areas to focus on relatively higher-income consumers. But, as newer and more appealing brands enter the space like Whole Foods, they have been forced to start their march towards focusing on relatively lower-income communities. So, they have been expanding their store footprint and cutting prices to appeal to this new demographic that they are starting to focus on. Unfortunately for dollar stores, new Walmarts and Targets are being built right in their backyard and eating away from the sales. We don’t realize that we are spoilt by choices in cities, but in communities where they have only seen the inside of a Dollar General, Family Dollar, or Dollar Tree, walking into the experience a Walmart or Target provides would be like finding a goldmine, and once the consumer is hooked in, converting them into loyal customers does not take much time!
Supply Chain Problems - The last set of problems that dollar stores faced at the height of the pandemic and the months following the lockdown. The reality of most dollar stores is that the products they sell are often produced abroad and shipped to the U.S. in bulk to keep prices low. This became a massive problem during the pandemic when governments of many countries shut their border and minimized the imports/exports to and from the region. This disruption resulted in rows of empty shelves in some communities’ only place to shop and created a negative shopping experience, which pushed people to explore other retailers in the region (if there were any).
Image Credit - George Thomas (Medium)
Those were the reasons I think Dollar Stores are losing, and unfortunately, I think this might continue until Dollar Stores becomes relatively obsolete (Until a new version of dollar store comes up in the market, and people start obsessing over it). Sorry for being a little pessimistic, but the problems that plague the dollar store industry seem a little out of hand to solve. Sure, you can fix the mismanagement in companies, inflation coming down might help, and retail theft will become less prevalent, but solving for these would be like treating symptoms for a disease and not actually eliminating the disease.
Fortunately, all hope is not lost, and there is only one thing that can help the industry get back on track - An economic downturn/recession! It sounds a little odd, but a recession in the next couple of years might be the best thing that happened to the dollar store industry. If a recession does become a reality, more people will be forced to shop at places that sell cheaper products (often compromising on their health). This is where dollar stores will shine in my opinion (if they can manage to stay afloat for that long). I personally find it morally wrong to hope for something bad to happen to bring in profits. If the company can’t stay (at least) profitable, I think it was not meant to survive. But, obviously, there are certain exceptions to this.
Nevertheless, that was my take on a growing problem that no one is talking about. Let me know if I missed something, and definitely text me if you think I am wrong, I would love to know your point of view 😄
Troubled Week For AI Stocks! Is The Hype Dying Down?
This image shows how Ford (a consumer cyclical company) and a utilities (a consumer defensive company) have performed over the years. Utilities companies are in the business of supplying things like water and electricity (Things people will use no matter the economy)
This is was a very difficult (but fair) week for stocks that have been riding the AI hype train. NVIDIA is down 13.54% this week after a horrendous Monday when the stock lost almost 10% ($279 Billion) of its value. Other major companies like Microsoft, Apple, and Meta suffered a modest blow and lost close to 4% this week.
“Smart people” on Wall Street are saying that the reason for this decline is because people are losing interest in AI-related companies and with an interest rate cut around the corner, investors are moving their money to consumer cyclical companies.
What are Consumer Cyclical companies? Good question! There is a major hint in the name itself - “Cyclical”. Consumer Cyclicals are the type of companies that follow the economy’s health. So, if the economy is doing great, these stocks will too. Over the past few years, the Federal Reserve has been increasing interest rates, which has theoretically hindered the growth of the economy because people weren’t able to consume as much as they wanted (Ex. Buy homes because of high interest rates). Now, that the interest rates might be coming down, investors think that the growth economy might start to accelerate, hence increasing the stock prices of Consumer Cyclical companies.
Examples of consumer cyclical companies include Amazon, Tesla, McDonald’s, Nike, Starbucks, etc.
⚠️ A word of caution: Investors get stuff like this all the time. So, it’s incredibly important to do your own research EVERYTIME! So, whatever the stock does, you know that you made the best decision with all the facts you knew about :)
I Am Trying To Learn German Again…
Back on Duolingo! Learning German 😃
My first language is Hindi, and I have been learning English since 1st Grade, but German (as a language) will always have a special place in my heart. That’s because I can’t seem to find a place for it in my brain 😆
On a more serious note, it’s true that I have a relationship with German (“Deutsch“ - That’s “German“ in German) that I cannot explain. It was the first language that I chose to learn, rather than having to learn it because I had to, and I think that means something to me.
Nevertheless, I started learning German in 7th Grade (I think) simply because I had to choose between an Art class and learning a new language, and I had heard rumors that the Art teacher was very strict and that I shouldn’t get on her bad side. I knew that I had negative interest in making paintings and stuff, so it wouldn't be too difficult for me to get on her bad side. Therefore, I chose to learn a new language - a language that I knew I would never have to use in the short-to-medium term. Yet, there I was in a different classroom, learning German and trying to evade the art teacher.
Image Credit - Chatterbug
Even though I had never planned to, I really enjoyed learning a new language and understanding a little bit about a culture so different from the one I was raised in, or the one I was accustomed to. I went on to do well in that class and continued to learn German for the next 1.5 ish years. But now, my goal has shifted from avoiding a teacher to learning a new language well enough to be able to communicate freely.
Unfortunately, an ungodly amount of bureaucracy at my school meant that they had to shut down all German classes. After we were told that there would be no more classes, we were essentially thrown into the art class, and I was forced to be in the class with the teacher I had tried to avoid for 1.5 years. I didn’t like the experience, so to fill the void of not being able to learn a new language from a human, I turned to Duolingo, which I used for the next few months to make some progress. I am not sure what happened but I never used Duolingo after that time, and knowledge of German also went down the drain.
So, I have now decided to continue my journey of being close to fluent in German again, and I am using Duolingo this time as well. While I don’t plan on spending multiple hours every day on the app trying to learn, I am determined that 5-10 minutes a day would be a good number for me and would help me learn the language without burnout.
I am currently on Section 2 (out of 5) and I plan to complete them in the next year!
Duolingo has 5 sections for the German language path, and I am currently on the 2nd one. I am not sure how much time I will need to complete all of them, so I don’t want to commit to anything yet, but I think that a fair goal will be to complete or be close to completion in a year. Let’s see how this goal holds up.
Thank you to all 44 of you for believing in me and I hope to see all of you (and hopefully more) in the next one 🙂