“We do very good in good times, and we do fabulous in bad times,” Dollar General’s then-CEO once said confidently, just as the Covid pandemic and its related economic challenges began to weigh on consumers.
Four years later, that maxim may not hold true anymore. The major dollar store chains are changing their tune, as lower-income shoppers struggle, higher-income shoppers rein in their spending, and shoppers of all income levels do more of their shopping somewhere else.
Dollar Tree is the latest to dampen investors’ expectations, warning yesterday that sales and earnings in the most recent quarter “fell short of our expectations.” That comes a week after Dollar General told investors “we are not satisfied with our overall financial results.”
So if times are tough, why aren’t they “fabulous” for dollar stores anymore?
For a while, at least, dollar stores were benefiting from a one-two punch – lower-income consumers were relying on them more, and higher-income consumers who were watching their spending were doing more dollar store shopping, too.
But that’s starting to change. Dollar General CEO Todd Vasos warned of “a core customer that is less confident of their financial position.” That core customer, who accounts for more than half of Dollar General’s sales, earns less than $35,000 a year. And they’re not spending as much as they used to at Dollar General anymore.
“Demand from Family Dollar’s core lower-income customer remains weak,” Dollar Tree Chief Operating Officer Mike Creedon echoed, speaking about the Dollar Tree-owned chain that caters to a similar demographic as Dollar General. Dollar Tree, in contrast, “has a broader customer base that includes more middle and upper-income households.” But even there, “we started to see inflation, interest rates, and other macro pressures have a more pronounced impact on the buying behavior of these customers.” Those shoppers, Creedon said, “have maybe changed how they celebrate a party this summer, fewer guests, fewer parties. They’re really tightening their belts.”
And there’s another important factor at play. Dollar stores aren’t the only low-price game in town anymore. “Competition from companies like Walmart and ALDI is heating up,” BN Capital analyst Leo Nelissen observed recently. ALDI “is taking market share away from Dollar General in certain areas,” while Walmart “is increasingly offering low-price items, (so) consumers with low budgets have a lot more opportunities to pick from.”
Dollar General’s Vasos acknowledged that the Bentonville, Arkansas-based Walmart is feeling more fabulous than Dollar General is these days. “The guys down in Bentonville are doing a pretty nice job in garnering the available traffic that’s out there from other retailers,” he said. Walmart has done “a lot better in gaining the share that was available in the marketplace. We didn’t get our fair share of that.”
So how can dollar stores get their mojo back? Dollar General is lowering prices. Dollar Tree is, incongruously, raising them.
“We are increasing our investment in markdown activity in an effort to support our customers,” Vasos said. “We’re stepping up that promotional activity” because “that core consumer is very, very price sensitive at this point and looking for value anywhere she can find it.”
As for Dollar Tree, it’s pushing ahead with its plans to introduce more higher-priced items in more stores. 1,600 of its locations now feature additional items priced at $3, $5, and up to $7, “breaking the buck” more than it ever has before. Creedon insists that “Dollar Tree’s multi-price expansion continues to resonate with our customers,” giving them access to more products that Dollar Tree would never be able to sell for just $1.25. When asked by one investor how much of Dollar Tree’s weak performance is based on overall economic conditions, versus “pushback on the multi-price point strategy,” Creedon expressed no regrets and no plans to pause the continued rollout of higher-priced items to more stores.
Family Dollar, meanwhile, may yet turn out to be a lost cause. Creedon said the company is “making good progress on our strategic review at Family Dollar,” which it said earlier this year could include a potential sale of the business.
As shoppers struggle, it’s different this time. Gone are the days when everything at a dollar store really cost just a dollar. And, apparently, gone are the days when what’s bad for shoppers is fabulous for dollar stores.
Image source: Dollar General
When I walk into Dollar Tree, Family Dollar or Dollar General and see that the store is trashed, boxes in the aisles &/or little on the shelves or product thrown everywhere I see very little value in that store. So it doesn’t matter if you charge $1.25, $5 or more I just want to get what I came for and get out of there as fast as I can. I know from listening to employees talk that there is unrest and they are not happy. They call in or just don’t come in at all leaving one or two persons to work. I have been a supervisor for years and know that happy employees make such a difference in the workplace and customers actually enjoy coming in. I also realize young employees are different today than years ago but i’m just saying your problem may be higher in the organization than just inflation problems as was stated earlier.