When shoppers are looking for value, dollar stores seem like a logical destination. But this stingy mentality is not enough to boost sales dollar tree and Dollar General.
Shares of the deep discounter have fallen significantly so far in 2024. Both companies have experienced leadership changes: Dollar General and its former CEO Jeff Owens parted ways in October 2023, and Dollar Tree CEO Rick Dreiling resigned on November 4. Family Dollar, a brand for groceries.
The results represent a dramatic turnaround for the dollar store, once a darling of Wall Street. The struggle is That puts the two retailers under scrutiny, both of which are set to report quarterly earnings this week.
Dollar General and Dollar Tree stores
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Piper Sandler retail analyst Peter Keith said a number of challenging factors were hurting retailers. Low-income customers who tend to shop at chain stores are the most vulnerable to economic changes such as inflation. He said streamlined operating models, such as lean staffing and low hourly wages, have led to cluttered aisles and a poor customer experience. With traditional retailers such as Walmart He said the company has invested heavily in e-commerce to keep up with changes in consumer habits during the pandemic.
“Dollar stores are inherently convenient because they have many locations, but they don’t have very robust digital offerings,” he said. “I think that has become a disadvantage in the current environment.”
Shares of Dollar Tree and Dollar General have each fallen more than 40% this year, while the S&P 500 has gained more than 26% during the same period.
nervous shopper
For decades, dollar stores have attracted shoppers by offering a wide variety of items at simple prices and in smaller sizes to fit tight family budgets. However, every dollar store banner has a different take on strategy and variety.
Dollar Tree consists of two store brands, the namesake brand and Family Dollar. Dollar Tree’s stores in suburban malls sell many seasonal and non-essential items, such as party supplies and toys.
Dollar General focuses primarily on rural customers. Historically, it sought out small towns or residential areas where shoppers would otherwise have to drive long distances to get to a grocery store or Walmart. In recent years, it has launched a new store concept, Popshelf, selling more discretionary items such as cosmetics, candles and throw pillows aimed at middle- and upper-income shoppers.
Although the two chains have adopted different strategies, they both rely on opening stores to drive sales growth. The two retailers are the largest in the United States by number of stores. Dollar Tree has more than 16,000 stores, while Dollar General has nearly 20,000 locations in the United States.
They have more stores than their competitors: Walmart has about 4,600 stores nationwide and Target has nearly 2,000 stores nationwide.
But high inflation has tested their business models. Dollar General Chief Executive Todd Vasos said at the Goldman Sachs Retail Conference in September that about 60% of Dollar General’s total sales come from households earning less than $30,000 a year.
In challenging economic times, these regulars often feel the pinch first.
Vasos said in September that Dollar General experienced a “pretty sharp slowdown” in the three months ended Aug. 2. Almost the same amount — including its newest store.
Piper Sandler’s Keith said the past two years of high inflation are different from those seen during the Great Recession. Around 2007 to 2009, middle- and upper-income households began shopping more at dollar stores to further save on their budgets.
This time, Keys said, unemployment remains low and other value-focused retailers, including Walmart, are attracting middle- and upper-income shoppers.
Chief Financial Officer John David Rainey said most of Wal-Mart’s market share gains in the most recent quarter came from households making more than $100,000 a year.
Warehouse clubs such as Costco and Walmart-owned Sam’s Club, online retailers such as Amazon and Temu, and grocers Aldi and Trader Joe’s, which specialize in private labels, are also competing for price-conscious shoppers, sometimes even taking away their business.
Dollar General admits competition is tougher. “Associates in Bentonville (where Walmart is headquartered in Arkansas) are capturing a greater share of the retailer’s middle-income customers,” Vassos said at the September meeting.
During Dollar Tree’s earnings call in early September, chief operating officer Mike Creedon, who was recently named interim CEO, said the retailer had to lower its full-year outlook to reflect “how the challenging macro environment continues to impact our customers.” pressure”.
Family Dollar’s core customers, with lower incomes, “remain weak,” he said. But he said Dollar Tree, a chain that attracts a more diverse customer base, noticed fewer shoppers from middle- and upper-income groups in the latest quarter as inflation, high interest rates and economic stress mount.
Creedon said on the earnings call that discretionary items, which tend to be more profitable than food or household essentials, were Family Dollar’s worst-selling items in the most recent quarter as consumers purchased fewer home improvement, seasonal and beauty products. one.
Store problem
But some of the challenges dollar stores face are more self-inflicted.
Both companies faced backlash on social media and agreed to pay millions of dollars in fines to federal regulators over conditions in stores and warehouses, including cluttered aisles and blocked fire exits. Dollar General reaches settlement with U.S. Department of Labor in July The federal Occupational Safety and Health Administration has issued more than $21 million in fines since 2017, and the company will pay an additional $12 million in fines related to workplace safety issues.
Dollar Tree has been fined more than $13.1 million by OSHA since 2017, and the company reached a settlement with federal regulators in 2023, agreeing to improve worker safety. The company later pleaded guilty and agreed to pay nearly $42 million.
Keith said these safety violations could scare away customers who see the headlines and notice employees who appear to be overworked and shelves that are cluttered.
“No one wants to shop in an environment that looks dirty and messy,” he said.
Alasdair James, who served as Dollar Tree’s chief customer officer from early 2021 to early 2022, said some of these issues can be traced to the coronavirus pandemic. Filling shop jobs.
He said some Dollar Tree stores end up with just one worker who juggles all the duties, from checking people in to stocking shelves, leaving stores cluttered and discouraging for shoppers.
Additionally, James said that during the pandemic, suppliers and consumer goods companies have prioritized big-box stores that produce items in more typical bulk sizes rather than the reduced, affordable sizes sold at dollar stores.
Stores that are out of stock and understaffed are directing customers to competitors, he said.
Dollar Tree has also changed its pricing approach. During the pandemic, the retailer raised prices on most items to $1.25 and introduced higher-priced items, including $3, $5 and $7.
“We believe Dollar Tree’s multi-price expansion will be a long-term growth driver and will continue to resonate with customers,” a Dollar Tree spokesman said in a statement, describing the retailer as “prepared for those who may be feeling inflationary financials.” Solutions for Stressed Families,” including those who don’t live near a grocery store or pharmacy.
Both companies also face new risks under President-elect Trump. Trump has pledged to impose additional tariffs on imports from China, the source of many items sold at dollar stores.
Dollar General declined to comment on the challenges the company faces.
However, the company recently launched a strategy aimed at attracting more holiday shoppers to its stores. Dollar General will launch a “24 Days of Deals” event in December, offering discounts on special items every day. Promotions like discounted holiday cups or 12-ounce bacon buns are only available in stores.
—CNBC’s Ryan Baker contributed to this article.
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