A Tale Of Americaville §
Take Americaville, a hypothetical town somewhere in this country.
There are only two big superstores that have driven most of the neighborhood mom-and-pop retail shops out of business. Each store captures roughly 50 percent of the consumer spending of Americaville's inhabitants.
S-mart is a chain store and its corporate headquarters has deep pockets and is more efficient. Home Plus is also a chain store, but nationwide management has always struggled due to ill-advised and poorly-executed strategy.
Now comes a major recession. Twenty percent of the people in town are out of work due to a local factory closing up shop, transferring their machine equipment to the sister factory in Mexico; and a nearby call center's reduction in staff, as their CEO hires new workers at its expanded secondary center overseas, which is now the primary call center.
Half of those laid off have found new jobs, but they struggle with far less pay, often with only part-time hours. The rest are on unemployment insurance and SNAP food assistance going on almost two years now.
Due to these difficulties, fear of continuing job losses, and a tightening credit situation, the inhabitants of Americaville have cut down on their spending to just the bare essentials. Now they spend only 70 percent of what they used to in the heyday of the early 2000s. For a year, both stores struggle with declining revenue, but eventually, Home Plus succumbs to bankruptcy and closes.
It is a new year now. Everyone now shops at S-mart, the only place in town to buy groceries. Suddenly, economists notice S-mart's same-store sales figures are 60 percent higher than the year before. Market pundits hail a nascent recovery based on these same-store comparisons to last year. S-mart has even hired some people on part-time. S-mart stock (Ticker: SHOPS) soars as investors cheer!
But those in the know see the state's reported sales tax receipts are still in decline and government assistance outlays have continued to rise. They realize the original problem is still there.