Dollar stores appear to be struggling lately, as sales are declining and shoppers are staying away. So where are those shoppers going, exactly?
A new report finds that some of the biggest names in retail are doing big business, catering to shoppers who are looking for value and aren’t necessarily finding it at dollar stores.
Placer.ai’s “Retail Giants in 2024: Walmart, Costco, and Target’s Competitive Edge” takes a look at the big three big box retailers, to determine how they’re succeeding while other store formats are struggling.
The report first notes that foot traffic to all three retailers is on the rise. As a location analytics company, Placer.ai has unique insights into the frequency of customer visits. And so far this year, it’s found that visits to Costco are way up as compared to the same time last year. Walmart’s traffic growth is not far behind. And after a slow start to the year, Target’s trends turned positive in the spring. These increased visits have “likely been bolstered in part by summer deals and intensifying price wars – as the retailers slash prices to woo inflation-weary consumers back to the store,” Placer.ai observes.
That strategy is stealing some shoppers away from where they might otherwise have found deals: at the dollar store. Both Dollar General and Dollar Tree – which also owns Family Dollar – recently reported sales slumps, as their customers cut back on visits and spending. And Dollar General’s CEO lamented that Walmart is one of the greatest beneficiaries, “garnering the available traffic that’s out there from other retailers.”
Placer.ai found that there’s significant overlap between Dollar Tree and Walmart shoppers, with 21.6% of Walmart shoppers also doing at least some of their shopping at Dollar Tree. That’s several percentage points higher than Dollar Tree’s overlap with Target or Costco. “Customers of more modest means are often drawn to the rock-bottom prices offered at dollar stores,” Placer.ai notes, but they’re increasingly shopping at the big box stores, which “have unique offerings that distinguish them from dollar stores.”
Placer.ai used its location data, cross-referenced with demographic information, to draw conclusions about what’s working for each of the big box stores. Foot traffic at Target is strongest in higher-income areas, which validates Target’s strategy of catering to higher-income shoppers. “Even as the superstore slashes prices to attract more price-conscious consumers, the retailer is also taking steps likely to enhance its popularity among higher-income households,” Placer.ai found. It’s no accident that visits to Target that had been declining began to reverse in the spring, just as Target expanded its Target Circle Rewards program. The program’s paid membership tier “will be key for Target as it seeks to attract more affluent customers and replicate its high-performing results” nationwide, Placer.ai declared.
Costco’s secret weapon appears to be its growing appeal to a younger audience. Placer.ai found that the retailer’s strongest growth has been in areas with higher-than-average shares of young urban singles. While one might think of Costco as offering supersized products geared toward big families, Placer.ai found that it also appeals to younger shoppers “looking for new ways to stretch their more limited budgets.”
Finally, Walmart’s advantage over dollar stores and other retailers could be due in part to its popularity among families. Placer.ai’s data showed a correlation between Walmart’s growth and market areas with a high concentration of households with children. “Walmart can continue solidifying its market position by leaning into its family-oriented offerings and expanding its footprint in regions with growing populations of young families,” Placer.ai suggested.
So dollar stores may have some advantages, in that they offer low prices at convenient locations. It’s often a lot easier to get in and out of a Dollar General or Dollar Tree, for example, than it is to make a quick trip to a cavernous Walmart, Target or Costco. The three big box chains “still face considerable challenges,” Placer.ai concluded, but “each one brings unique strengths to the table.” And as dollar stores struggle lately, their pain could turn out to be their larger competitors’ gain.
Image source: Costco
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