Amazon (NASDAQ:AMZN) is often blamed for causing the "retail apocalypse," which has caused tens of thousands of store closures over the past decade. The expansion of Amazon's Prime ecosystem, which surpassed 100 million U.S. members last year, exacerbated the pain.
Yet discount retailers like Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) withstood Amazon's assault, flourished, and continued opening new stores. The dollar stores kept growing by opening their stores closer to lower income areas, offering lower prices than Amazon, and promoting a "treasure hunt" experience by constantly rotating their products.
It's also usually more convenient to buy products that cost less than $5 at brick-and-mortar discount retailers, since orders under $25 weren't eligible for free one-day shipping on Amazon Prime. To reach that threshold, customers needed to buy more products, or select them as "add-on" products for a bigger order.
But in recent months, Amazon eliminated the add-on option and instead started offering free one-day shipping for products that cost as little as $1. This seems like a deeply unprofitable strategy, but the use of Amazon's own logistics network and subsidies from participating brands could reduce the impact to the company's bottom line. Could this aggressive strategy cause serious headaches for Dollar Tree and Dollar General?