Dollar Stores Expand, Defy Woes
Dollar stores are contending with slowing sales and weaker earnings. That is not stopping them from pursuing an aggressive real-estate expansion.
Dollar General and Dollar Tree, the nation’s largest dollar- store chains, are together on track to open more than 1,300 new locations this fiscal year. That is down from last year. But it still far outpaces other retailers’ expansions, reflecting dollar-store executives’ belief that new stores are the key to juicing sales and capturing market share.
The openings come as dollar stores grapple with slowing spending from their core lowincome customers and growing competition from other discount retailers. Dollar stores, which are largely inperson shopping experiences, are also at a strategic disadvantage when it comes to ecommerce.
Rivals such as Walmart and Target have invested heavily in recent years to integrate physical stores with online shopping through delivery services and in-store or curbside pickup of items ordered online.
“Dollars always had this large niche in retail because it was the combination of value and convenience,” said Peter Keith, a senior analyst for financial- services company Piper Sandler. Now, he added, particularly for middle- and upper-income shoppers, “the shift toward this digital shopping has become the new convenience play.”
Dollar stores historically thrive during periods of economic uncertainty such as the recent period of high inflation. Dollar Tree posted record-high sales during the 2008-09 financial crisis. In 2020, a rise in unemployment at the start of the pandemic boosted Dollar General as customers sought out cheaper groceries and household essentials.
Four years later, retail executives and analysts are describing a “bifurcation” of the consumer landscape. More affluent shoppers are largely doing fine as inflation slows, but lower-income Americans remain pressured by higher prices and are spending less.
Households with annual income of $30,000 or below make up 60% of Dollar General’s overall business, so slower spending among these customers has a significant impact. Rival Dollar Tree, meanwhile, is blaming a pullback by households making more than $125,000 in annual income for worse-thanexpected results in the sec-
ond quarter.
Competition and price cuts from rival discount retailers are also hurting sales. And dollar stores have an uneven track record for store operations, with some locations plagued by cluttered aisles, understaffing and retail theft.
“They’ve relied on this new store growth without making sure that the operations and the existing stores are really solid,” said Neil Saunders of research firm GlobalData.
Dollar General, with more than 20,000 locations in 48 states, boosted hiring last year in an effort to improve the customer experience. Adding more employees to the selfcheckout section in its stores helped reduce theft last quarter, although it remains above 2019 levels, executives said.
Dollar Tree, meanwhile, is expanding its assortment at a wider price range and considering selling its underperforming Family Dollar chain, which it acquired for roughly $9 billion in 2015 but never succeeded in turning around. The parent company closed nearly 700 stores this year, mostly Family Dollars, but is still expanding through its namesake chain.
Dollar Tree has opened more than 300 new stores across both banners so far this year, and this spring the retailer purchased 170 leases of the bankrupt 99 Cents Only Stores chain. The company has already reopened more than 100 of those locations as Dollar Trees and plans to add at least 50 more by the end of 2024.
“These 99 Cents Only locations are proven, high-quality stores in strong markets with great growth potential,” Dollar Tree Chief Operating Officer Mike Creedon told investors earlier this month.
Dollar stores’ lack of robust online platforms poses a more structural concern. Dollar General, in particular, has historically won customers by opening stores in rural areas where Amazon and other online retailers have had less reach.
Retiree Susan Pollmann said cleaning supplies and other items she orders on Amazon are often delivered within 24 hours to her home in the St. Louis suburbs. But it takes longer to get deliveries to her lake house in the more remote town of Kissee Mills, Mo., and so she often finds herself running to the nearby Dollar General. It is less than a 10-minute drive away, much closer than the nearest grocery store or Walmart.
“You can almost always find what you need there without having to make a trip all the way into town,” Pollmann said.
But now Amazon is beefing up its delivery to far-flung parts of the U.S., threatening dollar stores’ corner on convenience. And investments by big-box retailers to integrate their in-person and online shopping services are paying off, with Walmart outperforming earnings and revenue expectations this year as its ecommerce sales grow.
The American consumer has become even more inclined to shop online since the pandemic, and “the desire to sit on your couch and shop garners a lot of money,” said Matt Garfield of the business advisory firm FTI Consulting.
It is unlikely dollar stores, which as sellers of low-price goods already operate on thin margins, will spend significant money building their own ecommerce infrastructure. But the companies have made some moves to increase their online offerings.
Dollar Tree offers in-store pickup of items bought online at some stores, and its Family Dollar customers can now buy SNAP-eligible products through Instacart delivery. Dollar General has partnered with the delivery company DoorDash.
Meanwhile, dollar-store executives say they will continue to open new stores. “We don’t believe that by slowing down to any large degree new stores would be the answer here,” Dollar General CEO Todd Vasos told investors in late August.
