Frugal, cheap, impoverished, strapped. Does it matter?
Costco (COST), Dollar General (DG), Dollar Tree (DLTR), TJX (TJX) and Walmart (WMT) are doing fabulously and to me they are statements: the American people just don't like to spend on merchandise anymore and when they do, they want to spend less than they used to.
When you combine these places with Amazon (AMZN) and the shopping platform it has, you can understand very clearly what is happening in this nation.
Let me set the stage. Over the course of the last few years we have seen a dramatic increase in the amount of a family's income going to intractable costs, namely rent, which continues to plow higher, and health care, which, because of the Affordable Care Act and the escalating cost, just crushes the American worker.
I am not being political. Rents have gone higher because credit, after the boom and bust of the Great Recession, is just too hard to come by for most people. That's how housing starts can be at the same level as they were when this nation had half as many people.
So, young families either stay at home with their parents or, because of uncertain times, they rent. Everyone knows rents have gone sky high to the point where it has become more affordable to buy a home. But the credit issue remains huge.
At the same time we know that health care costs for the average working person have escalated dramatically as the health care exchanges have been a bust for lack of a robust market place and the HMOs have dramatically raised their premiums. In the meantime, the plans for the solo practitioner are, in many cases, just downright exorbitant.
What's left is not made up by gasoline prices being low, hence why that dividend didn't amount to much. It was totally offset by these costs coupled with stagnant wages, courtesy of globalization, digitization and a surfeit of labor.
None of these is really captured by the broader figures, but they are a reality for tens of millions of Americans.
In that environment, many individuals resort to the "bargains" that are Dollar Tree and Dollar General. It is true that the prices are lower. Some of that is because of private label. Some of it is because of bargains these companies can exact even from brand-name manufacturers because of scale. Mostly it's because you have something left in your wallet after you go there. I just wish the Wall Street snobs would visit these stores so they would know how much better they are than they used to be.
Costco? Wealthier people got frugal because of the Great Recession and they realized that Costco's a total bargain. This is the quarter that Costco switches to taking Visa from American Express and many customers have held off waiting for the switch and the big points that come with using your Visa.
All of the problems of the broad line retailers redound in favor of TJX, which buys the excess inventory for low prices and then can mark them up and still make a fortune. Walmart's improved its stores and lowered prices and put technology to work to make it easier to buy online and have it delivered to your car when you pull into the lot. The prices are low and remember, perishables can't be left at your doorstep by Amazon. Still, do I have to explain the benefits of Amazon Prime?
So, rich, poor and in-between -- these are the winners in retail. Their stock prices are now reflecting those wins. I wouldn't chase. There will be a market-led downturn someday where I think you can get better prices. But these trends are here to stay and you should recognize as investors that they represent the only real bargains on Wall Street, just as they are on Main Street.
