Dollar Stores See High-Income Shoppers Hunting Value

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.

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 t...