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2017-12-08 — qz.com

As more and more US department stores close and malls are mothballed, Amazon is being blamed for the "retail apocalypse". But there's another dynamic crippling American retailers--a shrinking middle class exacerbated by a widening inequality gap. Between 1971 and 2015, the share of US income held by America's middle earners has contracted from 61% to 50%, according to Pew Research. Wealthy families had three times as much wealth as middle-income families in 1983; by 2013, they had seven times as much.

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In response to their own economic woes, middle-class consumers have shifted away towards discount retailers. The fastest-expanding retailers in the US are cheap, "fast-fashion" brands like Zara and H&M--and dollar stores. While the revenue of department stores in those malls is declining, Dollar General and Dollar Tree are growing at 6.4% and 7.5%, respectively. And investors have noticed, sending Dollar General's and Dollar Tree's stock up 23% and 36%, respectively, this year while the S&P Retail Index has been flat.

[The typical Dollar General customer profile is:] [The Customer] lives in a two-income household, making $40,000 per year before taxes; Employment has been stable but wage growth has been choppy. This year, her disposable income is around 2%, so $800 per year; This is well below her 20-year average of 3.5-3.8% and she is sensitive to price changes, by as little as a dime...

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