Friday, September 5, 2014

Big Money Behind Little Dollars

Anyone following the financial headlines has to marvel at the game of steal the bacon being played out by three very similar companies, Dollar Tree, Dollar General,and Family Dollar Stores  Their merchandise is consumable products -- paper products, cleaners, clothing, gadgets and chachkas and the like -- primarily aimed at low- and middle-income consumers.  Most of the goods are imported from cut-rate factories in China or 3rd world countries. Basically, Family Dollar Stores has been the object of takeover bids by their rivals, Dollar Tree and Dollar General. 

Although we’re talking about a generally low margin business, there are a lot of consumers in this category, and the owners of these businesses know it.  So what is Family Dollar’s 5.36% operating margin and almost $10 billion in sales (that’s a lot of purchases at $1.00 each:-) worth to the highest bidder, Dollar General: $9.1 billion.  It’s amazing that low margin businesses can carry this kind of price, but we’re talking about next to nothing interest rates, so just borrow it!  And of course there is the magic of synergy.

But if you look at the principals and the major individual stockholders of these three businesses, making millions of dollars personally in compensation and stock options every year, it brings up the issue of the 1% and the huge disparity of income between them, their employees and their customers. That’s the sad reality of the issue, the magnitude of that income discrepancy unprecedented until Wall Street overshadowed Main Street.

Maybe all three can get together as General Family Tree Dollar Stores?  Cheap goods for the poor and riches for the job creators!  Money rules!