Rising gas prices are grabbing the headlines after Russia's invasion of Ukraine put oil supplies in question, but inflation was running rampant well before hostilities began causing grocery store prices to soar.
In a rising cost environment, deep discount chains tend to fare well because consumers want to stretch their dollars as far as possible. Leading dollar store operator Dollar General (DG -0.36%) is looking to capitalize on the opportunity by opening 1,100 stores this year and hiring 10,000 workers at the new locations, its distribution centers, and as drivers for its private delivery fleet.
While Dollar General has long had big expansion plans on the books for a while, the addition of its new pOpshelf concept store that it wants to build out to 1,000 stores by 2025 is helping provide a new tailwind. Its footprint growth could keep it ahead of rival Dollar Tree and other discount chains, but there is a big question mark handing over the plans: Where will it get the new employees?
Image source: Dollar General.
Coming up short
The labor shortage is real and persistent. Tied to the so-called Great Resignation that began in earnest during the lockdown phase of the pandemic, workers have quit their jobs and showed no signs of being in a hurry to return.
It was believed the generous unemployment benefits state and federal governments doled out to people displaced from their jobs kept many people from returning to the labor force. Why work when the government is paying you more to stay home?
Yet those programs have mostly ended -- and still, there are more jobs available than people willing to fill them.
Although the official unemployment rate is 3.8%, that ignores the vast numbers of people the government no longer counts as unemployed because they have simply given up looking for work. Bureau of Labor Statistics (BLS) data shows the civilian labor force participation rate -- or the number of people actually working is just 62.3% of the population. Over 37% are not included.
For context, it was already at a historically low 63.4% before the pandemic struck, and it dropped as low as 60% when the government forced all but essential businesses to close. The differences seem small, but it represents millions of workers.
So while the participation rate bounced off its lows, it hasn't reached its pre-pandemic threshold yet, and you have to go all the way back to 1977 to find a rate as low as it is today.
Labor stagflation
That spells trouble for Dollar General and any retailer or business that wants to grow. In February, BLS found the retail industry had one of the lowest gains in new jobs on record, with only 37,000 positions created, a third of which were in building materials and garden supplies stores.
It estimates that between 2020 and 2030, there will be a need for over 557,000 workers to fill new positions, but the number of workers in the field will actually stagnate over that time.
Dollar General could find it difficult to bring in 10,000 new workers at a time when almost every other retailer has positions available that go unfilled. While the discounter can still build out its stores and have minimal staffing, the consumer experience then begins to suffer.
Image source: Dollar General.
The high cost of doing business
Beyond just filling positions, the labor shortage also forces wage rates to rise. The $15 per hour minimum wage is a reality in many places, even for unskilled employment like retail, and President Biden called on Congress to pass a national $15 per hour minimum wage during his State of the Union address.
In its last quarterly filing, Dollar General noted that rising labor costs due to a lack of workers available to fill positions has caused its operating expenses to rise over the past few years and has also caused shipping delays.
The retailer said rising labor costs were the leading cause of selling, general, and administrative (SG&A) expenses rising by 105 basis points last quarter. Operating profits tumbled 14% year over year, something that can only be exacerbated by opening 1,100 new stores and adding 10,000 new jobs to the queue.
While inflation's ongoing impact on consumers has led Dollar General's stock to fall 12% so far in 2022 -- with no end in sight to rising prices and a big expansion plan in the works that could raise costs even further -- the deep discounter may have a harder time than expected in growing its business this year.
