Dollar General tells FTC the checkout markup is just forex
The discount chain says the gap between its shelf tags and its register totals is an exchange rate, not a mistake, and the FTC's 20-state lawsuit simply does not understand currency markets.
Dollar General on Friday began quoting every shelf price in a new store currency, the Shelf Dollar, which floats against the US dollar at the register. The move came days after the Federal Trade Commission and 20 states sued the chain for charging more at checkout than its shelves and ads display. The company says the lawsuit mistakes a currency market for a billing error.
Under the system, a tag reading $1.00 now means one Shelf Dollar. The register converts it at the day's rate, shown on a ticker above the candy. The Shelf Dollar opened at par on Friday and closed at 0.91 to the US dollar. (Nine cents in one session. Thailand in 1997 started slower.)
Watch the spread. Short sellers call the gap between a quoted price and a paid price the basis, and when basis widens this fast it is not noise. It is a canary, and the canary has stopped singing and started reading the Bankruptcy Code.
"Prices were never wrong," said Carla Spreadwell, the chain's newly appointed Chief Basis Officer. "They were quoted in a different currency, and nobody had told the customers, the states or, frankly, the registers." She said the company will publish a daily fix at 9 a.m. Eastern "so shoppers can hedge."
Hedging a bag of frozen peas is not a sign of a healthy economy. It is a sign of a currency crisis with a loyalty card. Shoppers may lock in a rate for nine minutes by holding the item above their heads in the aisle, a process the FTC has already asked a federal judge to define.
Marcus Gravesend, who runs the short-biased fund Terminal Velocity Capital, said he went short the Shelf Dollar the moment he heard it existed. His prime broker told him you cannot short a currency that trades only at one chain's registers. He replied "watch me" and bought nine thousand rolls of paper towel under a 30-day return policy.
The FTC complaint, filed before the currency launched, accuses the chain of long-running deceptive pricing. Dollar General told investors on a hastily arranged call that the Shelf Dollar is fully backed. Asked by what, Spreadwell paused for nine seconds.
"The Shelf Dollar is backed by the full faith and credit of the shelf."
That is the sound of a peg breaking. (Every peg breaks. The only question is who is holding the gum when it does.) Regulators in the 20 states have reportedly asked whether the new rate counts as a second shelf price or a first confession.
I have seen this chart before. Every collapse starts with one price that means two things, and everyone agreeing not to ask which. The last one took the banks. This one is coming for the dish soap, and the dish soap is not too big to fail.
