With the collapse of the two major "one dollar store" retail discount giants, the bottom-level consumption in the United States has completely stagnated.

$Dollar Tree (DLTR.US)$ On Wednesday, the annual profit guidance was slashed by 20%, indicating that the middle and low-income customer group is facing "enormous pressure". After the news was announced, Dollar Tree's stock price plummeted 20% on the same day.

Coincidentally, $Dollar General (DG.US)$ The second-quarter performance fell far short of expectations, and the full-year performance guidance was significantly lowered, causing its stock price to plummet 30% last Thursday, the largest single-day decline in history.

In recent years, the wealth gap in the United States has been widening, the middle class has been shrinking, and the number of poor people has been growing. Dollar General and Dollar Tree have seized this opportunity to become the fastest-growing retail discount businesses in the United States, and their stock prices have been soaring.

The popular belief is that "dollar stores" attract more budget-conscious consumers through discounts, thus being able to survive during economic difficulties. However, this theory is now collapsing.

In the era of high inflation and high interest rates created by the Federal Reserve, the financial stress of the average American is greatly underestimated, especially as lower-income consumers have their wallets emptied, and even basic necessities are difficult to afford.

In addition, the "dollar stores" have previously engaged in a series of reckless expansions, and the "price war" from Walmart and other chain stores is becoming increasingly intense. The poor performance of the "dollar stores" is only a matter of time.

The wealth gap is growing wider and wider.

As one of the countries with the most severe wealth gap in the world, the United States is still setting new records for income inequality.

Michael Hartnett, Chief Strategist at Bank of America, links income inequality and market performance in his latest Flow Show report.

For example, the stock price of the luxury symbol Ferrari has reached a historic high, while the stock price of Dollar General, a representative of the poor, has fallen to its lowest level in six years.

The "Big Seven" companies that dominate the US stock market now have a market cap of $15 trillion, an unprecedented level, while the market cap of approximately 4,846 companies in the MSCI Developed Markets Small Cap Index is only $18 trillion.

Hartnett believes that the Federal Reserve is the main cause of wealth polarization in the United States. During this round of interest rate hikes, housing, food, and stock prices have all reached historic highs and continue to rise, coupled with a weak labor market. The foreign exchange market is pricing in a "50 basis point" rate cut.

Low-income groups are facing difficulties, and retail discount stores are affected.

As frontline players in consumption, Dollar General and Dollar Tree have deeply felt the harm of high inflation and high interest rates to the lower-income people in the United States.

Dollar General stated last week that rising prices, a weak job market, and rising interest rates have put pressure on low-income customers. Dollar General has more than 20,000 stores, mainly in rural towns, and over 60% of its sales come from households with annual incomes below $35,000.

CEO Todd Vasos stated on an analyst conference call that over 60% of customers have responded that they have had to make sacrifices in purchasing essential goods due to rising prices. Consumers are also paying more for rent, utilities, and medical care.

Dollar Tree has also received similar feedback. The company has over 8,000 stores, mainly in suburban markets, targeting middle-income consumers.

Chief Operating Officer Mike Creedon stated on Wednesday,

We are starting to see more pronounced effects of inflation, interest rates, and other macro pressures on customer purchasing behavior.

Due to the sluggish sales, retailers are forced to collectively reduce prices and clear inventory.

Former executives of Dollar General and other retailers, David D'Arezzo, told CNN:

They are trying to get rid of the failed non-consumable product strategy, as they have a large amount of inventory. They overlooked the fact that in difficult times, consumers will look for consumable products.

In addition, the U.S. 'dollar stores' are in trouble, and Walmart is not without credit.

Walmart, Target, and other retail giants have also implemented price reduction promotions to attract inflation-affected shoppers, thereby reducing the number of consumers visiting the 'dollar stores'.

Vasos admitted last week that Walmart has done 'quite well' in attracting price-sensitive consumers.

Meanwhile, Dollar Tree is still far from escaping the enormous pressure brought by the acquisition of Family Dollar. Earlier this year, Dollar Tree announced the closure of more than 900 Family Dollar stores, and is in the process of splitting up or selling the company.

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