May 27, 2022
Dollar General and Dollar Tree released first-quarter results this week illustrating that when consumer prices rise and the economy gets tougher, people shop at their local dollar stores.
Both dollar store operators posted strong year-over-year numbers, going against tough competitors.
General dollar reported an increase in net sales of 4.2 percent. Same-store sales fell 0.1%, compared to the same period last year, when competitors were up 17.1% year-on-year.
Todd Vasos, CEO of Dollar General, said his company’s value proposition is resonating with consumers looking to stretch their money.
He told analysts yesterday on Dollar General’s earnings call“We’re already starting to see our core customers start to buy more intentionally, and we’re starting to see the next tier of customers start buying a bit more from us as well. In fact, when you look at the COVID client, I would call it, the one we’ve attracted and now retained since COVID, it’s still operating at or slightly above where we thought it was right now, and that’s a little high-end consumer.
dollar tree reported a sales increase of 6.5% across its banners, with same-store sales of its eponymous chain increasing 11.2% and Family Dollar improving 2.8% year-on-year ‘other.
President and CEO Michael Witynski said that Dollar Tree’s decision announced last September to raise prices on select $1-$1.25 and $1.50 items did not negatively impact the channel’s performance and, in fact, contributed to “improved sales and margins”.
The Dollar Tree district, in fact, was the strongest in the company’s history. The chain’s 11.2% same-store gain was its strongest in more than 20 years and its 20.2% operating margin set a record for the company.
Moody’s retail analyst Mickey Chadha in an email to RetailWire warned that there will likely be an increase in the number of consumers seeking value in low-margin consumables, which will put increased pressure on dollar chain margins. They “are unable to afford the higher prices and these companies will have to absorb most of the higher costs,” he wrote.
He expected, however, that higher sales would offset some of the pressure on margins, leaving Dollar General and Dollar Tree “a key advantage in a very challenging retail environment.”
DISCUSSION QUESTIONS: Do you agree that dollar stores will have to absorb most of the higher costs they will face in 2022 instead of passing them on to consumers? Does Dollar Tree’s decision to raise prices suggest that dollar stores have more price flexibility than is commonly thought?
“Dollar store pricing is an exercise in relativity. As long as they offer lower prices than traditional retail, shoppers will continue to flock there.”
“Dollar Tree’s price increases at the start of the rise in inflation demonstrate that these markets have strong consumer demand and resistance to price increases.”
“No. Dollar stores should be able to raise prices and pass them on to consumers, but not with impunity.”