When shoppers are looking for value, 100 yen stores may seem like the obvious destination. But that penny-pinching mentality wasn’t enough to boost sales. dollar tree and dollar general.
Stock prices of large discount companies have plummeted by 2024. Retail companies have each revised their full-year forecasts downward as sales were lower than expected. And both are undergoing management shakeups. Dollar General and former CEO Jeff Owens parted ways in October 2023, and Dollar Tree CEO Rick Dreiling resigned on November 4. Dollar Tree is also considering selling its grocery-focused brand Family Dollar.
The results represent a sharp turnaround for the dollar store, once a darling of Wall Street. The struggle is Two retailers scheduled to report quarterly results this week will come under scrutiny.
Dollar General and Dollar Tree stores
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Piper Sandler retail analyst Peter Keith said a difficult combination of factors is hurting retailers. Low-income customers, who tend to shop at chain stores, are most vulnerable to economic fluctuations such as inflation. He said a razor-thin operating model, including lean staffing and low hourly wages, contributed to sloppy aisles and a poor customer experience. And competition has increased as traditional retailers have entered the scene, including: walmart He said the company has invested heavily in e-commerce to respond to changes in consumer habits during the pandemic.
“100 yen stores are inherently convenient because they have many stores, but their digital products are not as strong,” he said. “And I think that puts us at a disadvantage in the current environment.”
Dollar Tree and Dollar General stock prices have both fallen more than 40% this year, while the S&P 500 index has risen more than 26% over the same period.
shopper stretching
For decades, dollar stores have attracted shoppers by offering a wide range of products at simple prices and small sizes to fit tight household budgets. However, each 100 yen store banner has a different twist on strategy and product assortment.
Dollar Tree, as the name suggests, consists of two store brands: Family Dollar. Dollar Tree sells many seasonal and discretionary items, including party supplies and toys, at its suburban strip mall stores.
Family Dollar, which Dollar Tree acquired for nearly $9 billion in 2015, has stores in more urban areas and sells more food and household goods. Family Dollar was the weak link of Dollar Tree. In March, the company announced plans to close about 1,000 Family Dollar stores. The company is also considering the possibility of selling the business.
Dollar General primarily focuses on rural customers. Previously, they were looking for small towns and residential areas where shoppers had to drive long distances to get to a grocery store or Walmart. In recent years, it has debuted a new store concept called “Pop Shelf,” which sells discretionary products such as cosmetics, candles, and cushions targeted at middle- and high-income shoppers.
Although the strategies they deployed were different, both chains relied on store openings to drive sales growth. These two retailers are the largest in the United States by number of stores. Dollar Tree has more than 16,000 stores and Dollar General has approximately 20,000 stores across the United States. Together, these two brands have more than a $1 store for every 10,000 people in the United States.
They have much more stores than their competitors. Walmart has approximately 4,600 stores and Target has approximately 2,000 stores nationwide.
But high inflation is testing their business model. About 60% of Dollar General’s total sales come from households with annual incomes of less than $30,000, CEO Todd Vasos said at the Goldman Sachs retail conference in September.
These frequent customers tend to be the first to feel the pinch during tough economic times.
Mr. Vasos said in September that Dollar General had experienced a “pretty significant slowdown” in the three-month interim period that ended Aug. 2, adding that the decline was “pretty much the same across all regions and all segments. It happened,” he said. amount” — includes the most recent store.
And Piper Sandler’s Keith said the high inflation of the past two years has played out differently than during the Great Recession. From approximately 2007 to 2009, middle- and high-income households began shopping more at 100-yen stores to further stretch their budgets.
This time around, unemployment remains low and other value-oriented retailers, including Walmart, are attracting middle- and upper-income shoppers, Keith said.
Most of Walmart’s market share gains in the most recent fiscal quarter came from households with annual incomes of more than $100,000, said Chief Financial Officer John David Rainey.
Warehouse clubs like Costco and Walmart Inc.’s Sam’s Club, online companies like Amazon and Tem, and private-label grocers like Aldi and Trader Joe’s are also competing for price-conscious shoppers, and sometimes taking business away from them.
Dollar General acknowledges increased competition. “The people of Bentonville [the Arkansas home of Walmart’s headquarters] Vasos said at a conference in September that the retailer has acquired a little more middle-income customers.
COO Mike Creedon, who was recently named interim CEO, said during Dollar Tree’s early September earnings call that the company reflects “how the challenging macro environment continues to put pressure on our customers.” In order to achieve this goal, the full-year forecast needs to be revised downward.
He said Family Dollar’s core customer base, low-income consumers, “remains weak.” But he said Dollar Tree, a chain with a more diverse customer base, has seen a pullback in middle- and high-income shoppers in recent quarters due to inflation, high interest rates and increasing economic pressures. He said he noticed that.
Creedon said on the earnings call that general merchandise, which tends to be more profitable than groceries and household goods, was the lowest at Family Dollar in the most recent quarter as shoppers bought less home décor, seasonal products and beauty products. It was one of the products that sold poorly, he said at the financial results conference.
Daniel Acker | Bloomberg | Getty Images
store problems
But some of the challenges for 100-yen stores are more self-inflicted.
The companies have faced backlash on social media and have agreed to pay millions of dollars in fines to federal regulators over conditions at their stores and warehouses, including cluttered aisles and blocked emergency exits. In July, Dollar General settled with the U.S. Department of Labor to pay a $12 million fine over workplace safety concerns, on top of more than $21 million in fines imposed by the federal Occupational Safety and Health Administration since 2017. reached.
Dollar Tree agreed to improve worker safety in a 2023 settlement with federal regulators after racking up more than $13.1 million in OSHA fines since 2017. He pleaded guilty in February and agreed to pay nearly $42 million after inspectors found live and dead rodents at the factory. A warehouse in Arkansas used to store food, medicine, and cosmetics.
Such safety violations can scare away customers who see such headlines and notice overworked employees and cluttered shelves, Keith said.
“No one wants to shop in an environment that looks dirty and messy,” he says.
Alasdair James, who served as Dollar Tree’s chief customer officer from early 2021 to early 2022, said some of these issues date back to the coronavirus pandemic. Retailers struggled to fill stores with government stimulus checks and the coronavirus outbreak. .
In some Dollar Tree stores, one employee is left to handle everything from checking out employees to stocking the shelves, resulting in clutter in the store and a lack of shoppers. He said it took him away.
In addition, vendors and consumer goods companies have prioritized big-box stores during the pandemic by creating more common bulk-sized items rather than the smaller, more affordable sizes sold at dollar stores, James said.
Out-of-stock and understaffed stores are driving customers away to competing stores, he said.
Dollar Tree also revamped its pricing approach. During the pandemic, the retailer raised the prices of most items to $1.25 and rolled out items in higher price points such as $3, $5 and $7.
“We believe Dollar Tree’s multi-price expansion will be a long-term growth driver and continues to resonate with our customers,” a Dollar Tree spokesperson said in a statement. He described the retail store as “a solution for families who may be feeling the financial burden of inflation,” such as those who don’t live near a grocery store or pharmacy.
Both companies also face new risks under President-elect Donald Trump’s administration. President Trump has promised to impose additional tariffs on imports from China, the source of many products sold in dollar stores.
Dollar General declined to comment on the company’s challenges.
But the company recently touted strategies aimed at driving more visits from holiday shoppers. Dollar General is promoting a “24 Days of Savings” event in December, offering deals on featured items each day. Promotions like holiday mug discounts and 12 oz bacon packs are available in-store only.
—CNBC’s Ryan Baker contributed to this article.
