The retail chain Family Dollar said Thursday it's going to close more than 300 stores. Shrinking sales and falling profits are the proximate causes. There is a line of thinking that says, "If a discount store like Family Dollar is reporting bad news like this, maybe that's good news for the broader economy."
Discount stores tend to do well during a downturn, when once higher-income consumers “trade down” for cheaper options, the argument goes, so perhaps the fact that discount stores are showing signs of struggle means those customers are trading back up, in response to a recovering economy.
And it is true that Family Dollar has thrived during many economic shocks. In fact, there’s a chart Family Dollar management recently trotted out at a retail industry conference that highlights this phenomenon -- a timeline of shocks to the American economy, events like the 9/11 terror attacks and the housing meltdown. After each of these events, you see a steep incline on the graph, denoting earnings increases for Family Dollar.
But just because Family Dollar is floundering now doesn’t mean the larger economy is thriving. Higher-income customers may be leaving family dollar now that their economic fortunes seem to be brightening in the economic recovery. But the story is complicated by the fact that low-income households still face high unemployment rates, and less money to spend in the wake of recent cuts to government assistance programs like food stamps and unemployment insurance.