When the economy goes bad, sales at the dollar store go up. Could the opposite be true as well?

Things are not going so well for the Family Dollar Store in the United States. Which is bad news for the employees, managers, and shareholders of the Family Dollar Store. But it may be good news for the rest of us.

For those not familiar with Family Dollar Store, it is a chain of discount retail stores in the United States. It is just one of a number of retail dollar store chains where the price of everything in the store is under or around $1. This concept is not exclusive to the United States, of course. £1 shops are littered around the UK, while stores selling things for just a single Euro, Canadian Dollar, Australian Dollar, and more can be found in hundreds of cities around the world.

Family Dollar Store, one of America’s largest with more than 8,100 locations, recently announced a loss in for their most recent fiscal quarter. Sales have likewise not been as high as the company expected. As a result, the chain will be closing 370 under-performing locations, cutting jobs, and embarking on a complete restructuring programme in order to reduce costs and return to profitability.

In the announcement from Family Dollar Store, they state the cause of these problems lies in increased competition. Like many retail outlets, they are suffering from the huge rise in online retailers. They also claim that customers simply aren’t spending as much as they expected.

However, this analysis of the reasons for Family Dollar Store’s losses may simply be a smokescreen for the real reason: The economy is improving.

It seems counter-intuitive that a general improvement in the economy would lead to poor results for a retail chain. It would stand to reason that when the economy is good, people spend more money and retail sales rise.

While that is true in most cases, for deep-discount retailers such as a dollar store, things may work the exact opposite. An interesting portion of the recent Family Dollar Store financial announcement included a curious graph showing the largest periods of business growth for the past 30 years.

Considering that this is a store where everything costs just $1, it is not surprising that the biggest sales increases in the company’s history were during recessions and after large negative events. For instance, 9/11 and the 2008 housing crisis caused Family Dollar Store’s profits to shoot up drastically.

It seems to me that a reduction in sales may not just come from an increase in competition, but from an increase in the amount of money that consumers have to spend. When the economy is strong and people have disposable income, shopping at the dollar store is no longer something people want to do. If you have the money to spend on a product you actually want and like, instead of something that only costs a buck, why wouldn’t you go for it?

Sure, there are probably other reasons for the recent Family Dollar Store losses as well. But it may also be a sign that the economy is getting better every single day.

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