Source丨Venture Bang (ID: ichuangyebang)
Author丨Zhao Xiaoxiao
Editor丨Guan Ju
图源丨marketplace
In the "99 cents" in the United States these days, the crowds are surging, and everyone is busy rushing to buy goods and enjoy the last "bargain" before closing the store.
"When I went, there was almost nothing left to pick up, and some of the shelves were falling apart. A Chinese living in the United States said. Some Chinese suppliers have suddenly received an email to cancel their orders in the past few days.
Founded in 1982 in California, 99 Cents Only focuses on cheap goods—all priced at 99 cents or less—and is an important channel for low-income people to shop and make ends meet.
In 1996, 99 Cents went public on the New York Stock Exchange, making founder Dave Gold a billionaire. In the decades since, 99 Cents has been one of the most iconic chains in the U.S. discount retail industry, with 371 stores and more than 10,000 employees.
The 42-year-old store has been battling inflation in the United States for 14 years, but in the end it has not been able to win.
Last week, interim CEO Mike Simoncic announced that the company would go into bankruptcy and liquidation, closing 125 stores by the end of this month, with the rest to close by May 31. 99 Cents has not been profitable for years, and according to the bankruptcy protection filing, the company has more than $1 billion in assets and liabilities, meaning that its net worth is close to zero.
Other "dollar stores" in the United States are not so miserable, but they are also facing greater business difficulties.
For example, Dollar General, which accounts for the largest market share of discount stores in the United States, reported revenue of $38.7 billion for the fiscal year ended February 2024, up 2.2% year-on-year, and net profit of $1.7 billion, down 31% year-on-year. Dollar Tree's operating income for the fiscal year ended February 2024 was $30.6 billion, up 8% year-over-year, and its net loss was $1 billion, down 160% year-on-year.
In order to maintain their market share, Dale and Dollar Tree also made the decision to close their stores, suspending their original store expansion plans.
Make a fortune in the sinking market
In the '80s, when 99 Cent was founded, the U.S. had just experienced a wave of economic crisis, with inflation, high unemployment, and plummeting spending power. According to the U.S. Census report, the nation's poverty rate in 1983 was the highest in 18 years.
In such a situation, everyone likes to buy bargains, especially the lower-income market group, who are tightening their belts to get by.
The positioning of the 99 cent store is the sinking market, they make the goods long, wide, covering daily necessities, fresh vegetables, food, etc., and the vast majority of goods are only sold for 99 cents, creating a "single price" retail concept, to a great extent to meet the shopping needs of low-income consumer groups.
Starting in California, 99 Cent stores have expanded to Arizona, Nevada and Texas.
As early as the thirties of the twentieth century, there were a number of retail discount stores in the United States, the core customers are the middle class and below in the United States, but not the main single price, the vast majority of goods are priced below $5, on behalf of the company is Dale, it is the first retail store to eat this wave of benefits, the company was listed on the New York Stock Exchange in 1968.
By the fifties, the gap between the rich and the poor in the rapidly developing United States was gradually widening, and the "dollar store" began to become popular in some poor villages and towns in the southern United States. The Dollar Tree was also established during this period, but at the time it was still just a grocery store.
The emergence of the 99-cent store was a watershed moment because it further promoted this "single price" model, and the differentiated pricing allowed the 99-cent store to find a gap in the market and avoid head-to-head confrontation with Walmart, Kmart, and Costco.
In 1986, the dollar tree took a "leaky" risk, transforming from a grocery store to a "dollar store", and also targeted the low- and middle-income groups that Wal-Mart had not yet fully covered.
By the mid-to-late 90s, a large number of Latin American immigrants poured into the United States, and the demand for cheap goods increased day by day. At the same time, the North American Free Trade Area (NAFTA) was established during this period, and China joined the WTO in 2003, opening up the world's purchase channels for the "dollar store".
Since then, the pace of "dollar stores" has gradually spread to large cities in the United States, and the year-on-year revenue growth rate has been significantly higher than that of the sluggish U.S. retail industry.
In 1995, the dollar tree landed on the NASDAQ. The following year, 99 Cent was listed on the New York Stock Exchange.
After the listing, Dollar Tree started the road of acquisition, rapidly expanded its territory, and acquired 5 dollar store companies within 10 years. In 2015, Dollar Tree spent $8.5 billion to acquire the Family Dollar Store.
A person familiar with 99 cents said that its annual purchase and import volume reached 13,634 TEUs, which belongs to the mid-sized consignee customers, which reflects the activity of 99 cents stores in global procurement. Dale has walked out of a 10-year bullish trend, and even Warren Buffett briefly held the company in 2012.
From the '80s to last year, these companies have been leaders in the decades-long bargain store market in the United States.
"Centralized store" collection loss
Among the discount stores and dollar stores, the closure of 99 cents shocked the global retail market. This decision means that this business empire, which was once regarded as a "shopping paradise" by countless low- and middle-income consumers, has officially come to an end.
After the closure was announced, Simoncic said, "It wasn't the outcome we wanted, but it wasn't an easy decision, and the macroeconomic environment over the past few years has greatly affected our operations." ”
The change first came in 2008, when the global financial crisis plunged the United States into a period of inflation, with food and fuel prices soaring, the cost of goods rising, and people's minimum wages rising. At that time, these retail stores either chose to maintain prices and swallow losses, or they were increasing the number of high-priced items.
99 Cents announced that it would increase the price of all items by 0.99 cents, and some items were priced above $1 each, forcing them to deviate from their long-standing pricing strategy.
But in 2011, Aris Management, a private equity firm, and the Canada Pension Plan Investment Board bought 99 cents for $1.6 billion.
After 2018, the U.S. government began to impose tariffs on Chinese goods exported to the United States, and the cost of logistics and wages rose accordingly, and a large part of the orders of 99 cents came from China, and the cost of logistics and tariffs became a big expense, and profit margins were constantly compressed.
Rising inflation in the wake of the pandemic, consumers spending more cautiously, and the U.S. government's efforts to cut or stop welfare policies have put a lot of pressure on low- and middle-income consumers, who are the main customers of these dollar stores.
For example, about 10% of Dollar General's sales come from this part of consumption. This means that the consumption impact stimulated by subsidies alone could reduce sales in these "dollar stores" by about 1-1.5%.
High inflation seems to have made more consumers go to dollar stores, but their overall spending has shrunk further after persistently high inflation and government aid ended, hitting discount store profits, an industry source said.
Under the influence of a series of backgrounds, in November 2021, Dollar Tree announced that the company's original $1 merchandise would increase in price to $1.25. Since then, the company's one-dollar goods have become history.
And in the case of the continuous downgrade of American people's consumption, the dollar tree has also become RT-Mart for Americans. In 2022, 2.6 million of the 5 million new customers added to Dollar Tree had a household income of more than $125,000, and many chose to pay by credit card rather than cash.
To add insult to injury, under the economic downturn, "zero-yuan purchases" (theft) are prevalent, which has brought direct economic losses and greater management pressure to these one-dollar stores.
According to the 2023 U.S. Retail Security Survey, theft cost $86.6 billion to the U.S. retail industry in 2022. Both Dollar Tree and Dollar General have mentioned in their earnings reports that the main reason for the decline in revenue is that the company is facing the problem of uncontrolled theft. 99 cent stores are facing the same problem.
In March, Dollar Tree announced that it would close nearly 1,000 stores (mostly family dollar stores) across the United States. Subsequently, 99 Cent announced that all stores were closed. Dollar General also plans to close some stores with high management costs and gradually move out of big cities to rural areas.
These dollar stores also appear to be facing the challenge of being rejected by their own country.
Smith, a senior fellow at the Institute for Local Economic Self-Reliance, said that many local communities are starting to develop an antipathy towards such chains of cheap stores. According to his statistics, more than 70 cities and towns have recently rejected plans to set up $1 stores, and more than 50 U.S. cities have enacted laws restricting the expansion of $1 store chains.
According to an industry insider, some communities may be more willing to reserve their daily grocery business and related employment opportunities for local small and medium-sized businesses and employees during times of greater economic stress.
Temu Attack Stomach
After Temu was launched in the United States, the biggest impact on the American retail market was these "dollar stores". In terms of market positioning, consumer groups, and product categories, Temu and them are highly overlapping.
Temu's biggest advantage is the volume price war.
Under the price increase of the "dollar store" in the United States, Temu took advantage of China's serious excess light industry capacity and temporary tariff preferences in the United States to continuously squeeze the moisture of the trading chain and push the price of goods to a very low level.
Backed by Pinduoduo, Temu also dared to spend money, spending a lot of money twice to reach the Super Bowl in the United States, and the advertising slogan "shop like a billionaire" was deeply implanted in the minds of 100 million Americans. This is something that the US "dollar store" is unlikely to do at this stage.
"I've seen Temu go from unknown to now known in the U.S. A Chinese entrepreneur in the United States who started an e-commerce business shared that his experience is that Americans like Temu very much, and can even be described as "excited". "Because it's incredibly cheap, even ridiculous, there's no one who doesn't like good value for money. ”
According to data analytics firm Earnest Analytics, in November last year, Temu accounted for nearly 17% of the market share of the U.S. discount category, Dale had a 43% share, Dollar Tree had a 28% share, and Five Below had an 8% share, and all of them declined to varying degrees.
"Temu's low-priced household goods and consumer goods pose a greater threat to brick-and-mortar discount stores like dollar stores than other online marketplaces. Michael Malov, head of marketing at Earnest Analytics, said.
If you look at the financial data, these traditional "dollar stores" as a whole have a downward trend. In the third quarter of this year, Dale same-store sales fell 1.3% year-on-year, the second consecutive quarter of decline, and the dollar tree increased by 5.4%, but the growth rate has slowed from the previous quarter.
According to industry insiders, "Temu's strength lies in its novelty and excitement, which is difficult for old-fashioned low-end discount retail brands to replicate." Temu has mastered gamified marketing and rewards to make online shopping fun, easy, and cheaper than dollar stores.
Especially in the context of the re-enactment of the US inflation cycle, e-commerce has become a pivotal channel for retail consumption.
Temu's popularity in the United States will accelerate the penetration rate of e-commerce in the United States. While it's hard to predict how Temu will change the spending habits of locals, the relative consensus in the industry is that it is benefiting from shopping fatigue from high prices and inflation.
This also seems to be an opportunity for these dollar stores. The latest news is that 99 Cent is working hard to save 143 stores in Southern California to continue to provide consumers with high-quality items and great prices.
But for now, the pressure is still on how to survive the inflation cycle, maintain revenue, and maintain the market position in the United States, and a series of challenges to be solved.