Dollar General and Dollar Tree Gain as Shoppers Trade Down

Dollar stores are getting more business from middle- and high-income households at the same time that their traditional low-income customers remain under pressure from the cost of necessities.

The split was visible in second-quarter earnings results reported Thursday (Aug. 27) by Dollar General and Dollar Tree. Dollar General said it continued to see customers trade into its stores from middle- and high-income groups. Dollar Tree said its year-over-year sales gains skewed toward middle- and high-income households. Meanwhile, both companies described low-income customers as particularly sensitive to the cost of food and other everyday purchases.

The numbers showed what those pressures are doing to the basket.

At Dollar General, same-store sales rose 3.5% as customer traffic increased 2% and the average transaction rose 1.5%. However, customers bought fewer items per transaction. Higher average retail prices accounted for the increase in the transaction amount, according to the company’s 10-Q filing with the Securities and Exchange Commission.

CEO Todd Vasos said during an earnings call with analysts that Dollar General’s core customers “continue to be financially constrained,” citing fuel prices and inflation among the pressures on household budgets. These customers have been forced to prioritize purchases around “value and affordability.”

Dollar General’s sales remain heavily concentrated in necessities, the filing showed. Consumables accounted for 82.1% of second-quarter sales. Consumables sales increased 5%, while seasonal sales rose 7.4%, home products 4.8% and apparel 4.5%.

Yet the company is also seeing evidence that consumers haven’t stopped buying discretionary merchandise altogether. Dollar General said non-consumables have grown faster than consumables on a same-store basis for six consecutive quarters. Vasos said combined non-consumable sales increased 4.5% during the quarter, with toys leading that growth.

The spending is coming from a customer base that is broadening by income. Vasos said Dollar General again experienced “strong trade-in across middle- and high-income” consumers during the quarter.

Essentials Take More of the Basket

At Dollar Tree, comparable sales increased 3.7%, with the average ticket up 3.3% and traffic up 0.4%, according to an earnings presentation. Consumables comparable sales increased 5.8%, more than three times the 1.6% increase in discretionary merchandise.

CEO Mike Creedon said inflation continued to pressure household budgets, “particularly for lower-income consumers.” These shoppers were stretching their dollars by turning to Dollar Tree for everyday essentials at lower opening price points and in pack sizes that allow for a smaller immediate outlay.

Dollar Tree reported that its sales gains skewed toward middle- and high-income households. Creedon said the company saw gains across all income cohorts, with the strongest gains among these groups.

That makes the dollar store earnings results relevant beyond their traditional low-income customer base.

PYMNTS Intelligence data showed why. The report “The Fragmented Paycheck: Why Rising Spending No Longer Means Stronger Demand” found that more than 60% of consumers earning $100,000 to $150,000 annually live paycheck to paycheck, while 46% of those earning more than $150,000 do. At the same time, the financial circumstances behind paycheck-to-paycheck living differ by income. Among paycheck-to-paycheck consumers earning more than $150,000, 48% said they lived that way by choice and 21% said by necessity.

Low-income and financially strained households have less room to maneuver. The report revealed that 53% of strained consumers had reduced nonessential spending over the previous year, while 23% had increased it.

The earnings results put those differences into actual shopping behavior. At the low end, consumers are buying necessities, watching price points and controlling how much they buy at once. Further up the income spectrum, consumers have more spending capacity but are still giving Dollar General and Dollar Tree a larger share of their business.

For retailers, the common thread is price. Dollar stores are seeing demand from consumers who need low prices and from consumers who can spend more but are choosing to look for value. The difference shows up in what they put in the basket and how much financial room they have once the essentials are paid for.