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Amazon Go vs. Dollar Stores: The Bifurcation Of Retail Deepens

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The tech-infused, convenience-oriented future of U.S. retail is only half the story — the upper-income half.

Dollar General

As U.S. income and net worth inequality widens, retailers who sell to lower-income Americans, particularly dollar stores, are also going to continue to flourish.

For upscale demographics, there are retail initiatives such as Amazon Go and its cashierless shopping, tech-oriented clothiers such as Reformation, and clicks-to-bricks boutiques such as Warby Parker, Axios reports. These brands tend to locate in upmarket urban or suburban areas, and will continue to do so.

By contrast, as middle-market stores and malls vanish, big-box retailers and dollar stores will fill the gaps in poorer urban and rural areas — and possibly not fill them as well as retail offerings of the past did, especially as midmarket grocery stores contract and take their food offerings with them.

The economic pressure at the lower end of the income scale is intense, helping drive low-earners to the likes of dollar stores.

Despite macroeconomic trends over the last 10 years that point to a growing U.S. economy, the lower 40% of household incomes is struggling just to keep up with expenses, while the middle 40% has seen incomes shrink, according to a report by Deloitte last year

The upshot for the retail sector of the squeeze on lower- and middle-income Americans are gains in sales and number of stores for the upper end and lower end, and losses for the middle. The trend has been noted for some time, and it is going to continue, Deloitte reports.

"Price-based and premium retailers have been opening more stores than closing them," Deloitte says. "This pattern is particularly apparent among the price-based retailers that we analyzed, where net store openings from 2015 to 2017 came to 264."

On average, price-based retailers — the dollar stores of the world and the like — are gaining two and a half stores for every store that midmarket retailers close, Deloitte calculates.

The pattern is illustrated by the recent robust growth in the dollar store sector. Dollar General is a prime example, with the retailer planning to open nearly 1,000 new stores this year, and earning a position as one of the country's most profitable retail chains in recent years.

There has been some pushback against the growth of discounters, as critics, such as the nonprofit Institute for Local Self-Reliance, argue that dollar stores stifle the growth of independent grocers and other local retail options.

"Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America," Cushman & Wakefield Director for Retail Research Garrick Brown told Bloomberg.