Dollar Stores Soar as ‘Value and Convenience’ Tap Into Consumer Trade-Down

After a bruising month beneath the weight of disappointing earnings results and consumer concerns across the retail industry, the nation’s two largest chains of dollar stores — with a combined 35,000 locations between them — pushed back on that sinking narrative Thursday (May 26) with a set of strong results and improved guidance.

The first-quarter earnings reports from Dollar Tree and Dollar General saw both stocks enjoying a 10% to 15% pop in early trading, after shedding more than 20% over the past 30 days.

“We are taking the necessary actions now to position ourselves for accelerated growth in what I view as the most attractive sector in retail, especially in the current economic environment,” Dollar Tree CEO Michael Witynski told investors on the Q1 earnings call, while adding the company’s intention to make additional investments to improve both the shopper and employee experiences to help capitalize on the current climate and trend.

“Value and convenience are more important than ever to our shoppers and the communities we serve,” Witynski said, calling it an incredibly challenging time but also an ideal moment to invest in the business.

‘Control What You Can’

For its part, segment leader Dollar General saw its Q1 revenues grow 4%, with same-store sales down 0.1%. 

“Despite ongoing headwinds due to supply chain pressures and heightened inflation, we remained focused on controlling what we can control and delivered solid financial results,” Dollar General CEO Todd Vasos said, pointing to a list of strategic innovations and investments of its own including over 800 real estate projects. 

At the same time, Dollar General also said — like its rival — that it planned to invest in improving its in-store experience, including inventory initiatives aimed at raising the level of in-stock items, while trying to limit out-of-stock merchandise that frustrates customers.

Given the strength of the Tennessee-based retailer’s Q1 results and strong expectations and raised sales guidance for the remainder of the year, Dollar General said it was able to move ahead with its growth plans.  

“We believe these investments will position us well to build on our sales momentum as we move ahead,” Dollar General CFO John Garratt said.

Also on the investment front, Dollar Tree’s newly appointed Executive Chairman and former CEO Richard Dreiling said the retailer was making a major push to improve its technology.

“We simply are not where we need to be from a systems perspective to reach our potential,” Dreiling said. “We have recently begun a comprehensive review of all of our systems and infrastructure to make the right decisions and investments to take Dollar Tree and Family Dollar to the next level.” 

The Dollar Store Experience

Throughout the pandemic, dollar stores have not only benefited from strong consumer demand and easy access to outlets that are often located in small, rural communities with few other shopping options, but have led — and contradicted — the industry by opening thousands of new stores. In fact, the two dollar chains alone accounted for roughly half of all new physical retail locations opened last year.

At the same time, although dollar stores are working hard to sell more consumables and groceries, a core pillar of their business model remains the fun factor they offer to largely female customers who enjoy the “thrill of the hunt” shopping experience they uniquely provide. 

“We all know it’s an incredibly challenging and uncertain time for businesses today,” Witynski told analysts, “but we believe our company offers the following as we manage through these times.” 

Those attributes include the resilience of a value-oriented business model that has proven to work in good times and bad, and the balance sheet strength that allows it to manage current challenges yet still move forward with its long-term investment plans.

“Our 16,000 store footprint is convenient for shoppers, buying their needs with a tremendous value assortment that helps shoppers stretch their budgets,” Witynski said.