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The Squeeze Of The Discounters


Image source: Jonathan Weiss / Shutterstock.com

What's going on?

Dollar General, which typically sells discounted goods (kind of like Poundland in the UK), said yesterday that its sales declined for the first time in 11 years!

What does this mean?

Discount retailers saw huge upswings in customer traffic after the 2008 financial crisis as people looked to save pennies on the dollar. However, business for retailers has gotten tougher recently: falling prices for many goods over the past few years have narrowed the competitive gap between discounters and traditional retailers. That’s because traditional retailers usually charge higher prices for goods than they really need to – and when prices fell, they had some leeway to push them down to meet consumers’ expectations. This weighed hard on their discount competitors, who really couldn’t afford to lower their prices any further.

Why should I care?

The bigger picture: Traditional retailers are getting better at selling online – and that could hurt the discounters.

Online retailers (especially Amazon) have been poaching sales from traditional ones like Wal-Mart and Macy’s for years, but recent data suggests the old guard is finally figuring out e-commerce (as evidenced by the recent Thanksgiving weekend). That’s great news for them – but it’s not so good for the discounters who often resell goods (at lower prices) that traditional retailers fail to sell.

For personally: Goods you buy are probably going to start getting more expensive.

For the past few years, the prices of most goods have been falling (think: cheaper TVs) partly because commodity prices went down. But, for the first time in years, manufacturing costs globally have started to go up recently (partly because commodity prices are now rising – see our other article). Product prices worldwide might soon follow (which could benefit discounters…).

Originally posted as part of the Finimize daily email.

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