DISCUSSION

When the going gets tough, consumers shop dollar stores

May 27, 2022Written by George Anderson

Dollar General and Dollar Tree issued first quarter results this week illustrating that, when consumer prices rise and the economic going gets tough, people go shopping at their local dollar stores. Both dollar store operators posted solid year-over-year numbers going against tough comps. Dollar General reported a net sales increase of 4.2 percent. Same-store sales declined 0.1, compared to the same period last year when comps were up 17.1 percent on a two-year basis. Todd Vasos, Dollar General CEO, said that his company’s value proposition is resonating with consumers looking to stretch their dollars. He told analysts yesterday on Dollar General’s earnings call, “We're already starting to see that our core customers start to shop more intentionally, and we're starting to see that next tier of customers start to shop with us a little bit more as well. Matter of fact, when you look at the COVID customer, I would call it, the one that we attracted and now have retained since COVID, it is still running at or slightly above where we thought we would be right now, and that's a little higher-end consumer.” Dollar Tree reported a sales increase of 6.5 percent across its banners with same-store sales at its namesake chain up 11.2 percent and Family Dollar improving 2.8 percent year-over-year. President and CEO Michael Witynski said that Dollar Tree’s decision announced last September to raise prices on select items from $1 to $1.25 and $1.50 didn’t negatively affect the chain’s performance and, in fact, contributed to “both sales and margin improvements.” Dollar Tree’s quarter, in fact, was the strongest in the company’s history. The chain’s 11.2 percent same-store gain was its strongest in more than 20 years and its operating margin of 20.2 percent set a company record. Moody’s retail analyst Mickey Chadha in an email to RetailWire cautioned that there will likely be an increase in consumers seeking value in lower margin consumables, and this will put more margin pressure on dollar chains. They “are in no position to afford higher prices and these companies will need to absorb most of the higher costs,” he wrote. He did expect, however, that higher sales will offset some of the pressure on margins, leaving Dollar General and Dollar Tree with “a key advantage in a very challenging retail environment.”

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