Dollar stores have emerged as one of the few winners from the U.S. economic crisis. As shoppers of all income levels face financial stress, even well-off consumers are turning to Dollar General and Dollar Tree in search of bargains.
Shares of the two largest dollar store operators in the United States jumped sharply today (December 4) after the companies’ results for the August-September quarter beat Wall Street expectations and raised their profit forecast for this year. Their strong results underscore the current demand for discount merchandise: About a quarter of Dollar General’s merchandise sells for $1, while 85% of Dollar Tree’s inventory sells for $2 or less.
Tennessee-based Dollar General reported a 4.6% year-over-year sales increase, with net profit soaring 44% to $282.7 million. Virginia-based Dollar Tree reported quarterly revenue rising 9.4% year over year to $4.7 billion, and profit rising 4.8% to $244 million.
Dollar General, which operates more than 20,000 stores nationwide, said a surge in foot traffic drove same-store sales up 2.5% in the quarter. But while more shoppers are coming in to shop, they are buying fewer items per visit on average.
“This traffic and basket composition is consistent with what we have historically observed when our core customers feel more pressure to spend,” Dollar General CEO Todd Vasos said on today’s earnings call. “Low- and mid-range consumers remain stretched thin.”
Wealthy shoppers seek deals
The discounters also highlight a notable shift: Affluent shoppers are increasingly turning to dollar stores as upper-income households feel the sting of economic uncertainty. Vasos said he’s seen “disproportionate growth” in this area, while Dollar Tree reported that 60% of its 3 million new shoppers last quarter came from households earning more than $100,000.
At the same time, “low-income families are relying on us more than ever,” Dollar Tree CEO Mike Creedon told analysts yesterday. He added that average spending among customers earning less than $60,000 grew at more than twice the rate of higher-income households.
Creedon hopes the influx of wealthy shoppers will continue. “We want to build a very sticky relationship with them,” he said, noting that Dollar Tree’s goal is to “wow” customers by curating relevant assortments in 16,500 locations and improving the in-store experience.
Dollar stores are the latest discount stores to thrive in a challenging economic environment that is forcing consumers of all backgrounds to stretch their budgets. Walmart, another retailer known for its low prices, last month reported a surge in affluent consumers looking for cheaper groceries and health products.
