Consumers are turning to dollar stores to make ends meet, according to the CEOs of the nation’s biggest low-cost chains.
Dollar General Corp. CEO Todd Vasos said not only are the company’s core customers “shopping more intentionally and closer to need,” but they’re also showing signs of stronger “trade down activity.”
Lately, he told Wall Street analysts on a call Thursday, shoppers have been relying more on private brands for food and similar consumables. “We also saw growth in the number of higher-income households shopping with us,” Vasos said.
“She’s being very intentional in her shopping patterns, as well as her shopping,” Vasos said. “What we’re seeing is that if we do have the right product out there, which we do, on the discretionary side, she’s shopping that as well.”
Private-brand sales are up on both a quarterly and annual basis. In addition, seasonal items such as Halloween merchandise are off to good start and “well over what we expected,” Vasos said. Higher-end consumers tend to drive the discretionary categories. “Some of that comes from that trade down, because that consumer does have a little bit more money to spend,” he said.
Dollar General, which operates the pOpshelf shop-in-shop format and the urban DGX concept, started canceling orders as early as December when it first got wind of consumers’ evolving behaviors.
For the second quarter ended July 29, the company’s net income rose 6 percent to $678.0 million, or $2.98 a diluted share, on net sales that increased 9 percent to $9.43 billion. Same-store sales gained 4.6 percent, with declines in apparel, seasonal and home products categories offsetting growth in consumables.
Dollar General’s main competitor Dollar Tree inc. also reported earnings on Thursday.
Second quarter net income rose 27 percent to $359.9 million or $1.60 a diluted share, on a net sales gain of 7 percent to $6.77 billion. Same-store sales rose 4.9 percent, and by nameplate were up 7.5 percent at Dollar Tree and up 2.0 percent at Family Dollar.
“Consumables comp increased 4 percent for the quarter. Discretionary comps declined 4.1 per cent as shoppers continue to manage through this inflationary environment,” Witynski told investors during a conference call on Thursday. The last time the consumable comp outpaced discretionary was at the onset of the pandemic in the first quarter of 2020, he pointed out.
The company has seen a “huge shift from cash into credit, which tells us the customer is pressured,” the CEO said. Once inside the store, “private brands have outpaced national brands for 24 weeks in a row now. That hasn’t happened in the last five years that private brands have outpaced national brands. And that’s the customer trying to stretch their dollar and manage their budget,” Witynski added.
Dollar Tree‘s multi-price model offers some items at $3 and $5, with select holiday product priced at $1.25. The retailer is also making assortment changes to improve Family Dollar sales. “We do have a lot of new customers coming into both banners over last year. And the majority of them are at a household income of $80,000 or higher,” Witynski said.