The popular big box retailer, Walmart, seems to be aiming for the top spot amongst peers in terms of affordability — and Dollar General seems to be paying the price for it.
Dollar General and Dollar Tree on the cusp of a bleak future?
September 2024 was a particularly troublesome month for Dollar Tree — owner of the Family Dollar chain who is known to be struggling — as the company was dealt with a stock plunge of 20%. This dip in value came about as the outlook of the company was cut for the remainder of the year due to “immense pressures” on its customers in the low and middle income cohorts.
This move by Dollar Tree follows in the footsteps of Dollar General, who, just prior to this, recorded its worst day for shares as a result of cutting off its forecast for the full year.
The history of both Dollar Tree and Dollar General is one of rapid growth when compared to other stores opened around the same period in recent years. Between watching competitors close down stores, the entrenched poverty spread across the country, and the shrinking middle class, these companies decided to capitalize on these issues by offering lower price points.
Since these were the factors driving the business model for these companies, investors boosted the value of its stock under the assumption that these dollar stores would not have to worry about economic setbacks. The investors were of the belief that since this is the go-to store for shoppers when times are tough, the company would thrive even under harsher economic conditions. Unfortunately, this world is not that ideal and the theory began to falter.
Dollar stores not cheap enough for struggling consumers?
Initially, dollar stores had widespread reach, enabling citizens who were struggling financially across the country. However, these stores did not fully account for just how vast the number of struggling individuals was.
When you consider the current cost of living, it is not surprising that lower income cohorts have been forced to cut back on spending and can barely afford their basic needs. As a result, dollar stores are now in trouble and the pressure is only increasing as a result of strategic miscalculations and growing competition from other retailers like Walmart.
Dollar General stores can be found at 20,00 locations, the vast majority of which are in rural areas. A higher percentage of 60% of Dollar General’s sales come from households with an annual income below $35,000.
Todd Vasos, Dollar General CEO, shared on an analyst call, “Inflation has continued to negatively impact these households, with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items.”
Dollar Tree’s 8000 stores that cater predominantly to the middle class, has also noted that its customers were under strain.
The mistake Dollar General made with its strategy was investing more in non-consumables which is now resulting in inventory collecting dust on the shelves. David D’Arezzo, a former Dollar General executive, shared with CNN, “They missed the fact in tough times the consumer would be looking for consumables.”
What is Walmart’s role in this?
Other big retailers like Walmart and Target have also had to re-evaluate their pricing systems in order to draw in more customers during this time of increased inflation. Subsequently, the price reductions from these chain grocers has caused shoppers to opt for stores like Walmart instead of the dollar store.
The Dollar General CEO even praised Walmart for its offerings of more affordably priced products.
Previously, when consumers were under financial pressure, Dollar General would see an influx of middle class earners, as well as those who earn slightly more, in its stores trying to save their budgets. Recently, however, it appears that these customers are now showing a preference for Walmart.
D’Arezzo shared, “I don’t believe that anybody in the world shares more customers than Dollar General and Walmart because of their close proximity to each other and the density of their locations in the southeast. When Walmart is doing well, Dollar General struggles.”