Family Dollar's Store Closings Shine Light on Income Inequality

NEW YORK (TheStreet) -- Family Dollar Stores (FDO) decision to close stores and downsize illustrates the problem that has hurt the markets this week.

Lack of demand.

A Democratic president has produced a Republican economy. Pew Research reported early this year that 40% of Americans now say they are lower or lower-middle class, while 44% claim to be middle class. In 2008, only 25% said they were lower or lower-middle class, and 53% said they were middle class. 

Groups such as the Council on Foreign Relations have been producing charts on U.S. income inequality for years. When Walmart (WMT) pays a low wage, it doesn't produce a workforce that can buy much at Walmart. When the Koch brothers agitate to keep budgets tight and public spending low, consumers can't afford their Georgia-Pacific toilet paper.

This recovery has been built almost exclusively on monetary policy, which gives money to banks, not to people. Banks aren't charitable institutions. They lend money only to people who will pay it back, with interest.

The federal government's stimulus package in 2009 helped get the economy back on its feet, but the economy remains sick. Since 2010, the annual budget deficit has been cut by more than half. Republicans may not want to admit it, but they have been winning the policy argument.

The economy will remain sick until consumers have money to spend. If the private sector won't give them that money and the public sector won't give them that money, things are going to continue as they are.

The stock market woke up to that reality this week.

Family Dollar reported earnings below Wall Street estimates and announced it will close 370 stores. The stock is down 12% this year. It's not alone. Other companies catering to the lower-middle class are also rolling over. So far this year, Dollar General (DG) is down 8%, and Dollar Tree (DLTR) is down 10%.

Big Lots (BIG) is up, but that stock had its crash earlier, falling 24% between December and early March before recovering more recently.

It's not that Family Dollar is a poor operator. We have a Family Dollar near my home. It's clean and well-stocked. The employees are friendly and helpful.

What is happening at Family Dollar is happening at every store that caters to lower-income customers. As our Rocco Pendola notes Walmart can't afford to restock its shelves.

In their collaborative effort, Secret Life of a Food StampSlate and American Public Radio profiled this economy. 

They estimated that if Walmart raised wages to get employees off food stamps, prices at the retailer's stores would increase about 1%. Revenue to Walmart would increase by more. Economic growth would also increase. Welfare spending would go down. 

It's fun to blame the poor for their own plight. It feels good. But a smaller, poorer middle class has less to spend on iPhones and other technology. Workers on food stamps don't spend as much on food as workers who are not on food stamps.

If Wall Street wants to see a better economy, it should demand that America get a raise. The money would come back. People have to shop somewhere. But the Koch brothers can't buy all our high-end toilet paper, and the Waltons can't buy out every Walmart.

That fact is now biting Wall Street itself in the butt. Will investors get the message? And what will they do with it?

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

 

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