Dollar Stores Focus on Value Amid Shifts in Spending Patterns

As economic pressures mount, dollar store retailers are experiencing shifts in consumer behavior, with lower-income households increasingly turning to credit cards for basic needs. Companies like Dollar General and Dollar Tree are adjusting their pricing strategies to maintain customer engagement, but discretionary spending from middle and higher-income consumers is on the decline. These trends highlight the evolving landscape for dollar store consumers.

1. Financial Struggles Among Lower-Income Consumers

More than 60% of Dollar General’s core customer base, which earns less than $35,000 annually, has reported difficulty in affording basic necessities, according to the retailer. CEO Todd Vasos noted that these consumers feel financially worse off compared to six months ago due to rising costs, sluggish employment, and higher borrowing rates.

“Many of our customers are resorting to credit cards for household essentials, with nearly 30% having at least one card that has reached its limit,” Vasos said.

2. Increased Focus on End-of-Month Promotions

Dollar General’s sales data reveals that consumer spending is lowest in the final week of each month, indicating that many shoppers are running out of funds. To counter this, the company has implemented promotions on essential goods, particularly food and beverages, during this period.

“These promotions help bridge the gap at the end of the month when customers are running low on cash,” Vasos explained.

3. Middle- and High-Income Consumers Reduce Spending

Dollar Tree has observed a decline in discretionary spending among higher-income shoppers, particularly for larger-ticket items. Jeff Davis, executive vice president and chief financial officer of Dollar Tree, noted that consumers are adjusting their spending habits, tightening budgets, and reducing the scale of events like parties.

While these consumers are still seeking value, they are not under the same financial pressure as lower-income households, Vasos pointed out. However, he acknowledged that attracting this group requires more substantial offerings.

4. Shift Towards Mass Retailers

Though Dollar General has maintained its market share, mass retailers like Walmart are gaining a stronger foothold among consumers, particularly in the southern U.S. John David Rainey, Walmart’s chief financial officer, noted that the retailer is seeing increased engagement from middle- and upper-income households, alongside continued growth among lower-income shoppers.

Walmart’s strength in e-commerce, which grew by 22% in Q2, presents a significant challenge to Dollar General’s efforts to compete in the digital space, despite the latter’s partnerships with delivery services like DoorDash.

As economic conditions continue to evolve, dollar store retailers must adapt to shifting consumer needs and competitive pressures from mass retailers like Walmart.