Dollar stores are famous for low prices. Even when economic times get tough, discount retailers usually continue to do well because they draw customers looking to pay less than they would in a typical store. But that’s changing as customers have less money to spend, and now dollar stores are struggling to stay in business. For instance, Family Dollar recently announced it will close 1,000 stores over the next several years while 99 Cents Only filed for bankruptcy this year and closed more than 350 locations. Dollar Tree and Dollar General have also reported much lower sales numbers than expected, causing their stock prices to drop significantly.
Dollar stores claim that customers of all income levels are spending less money per store visit as they face increasing economic pressure on their shrinking budgets. Dollar General, which has more than 20,000 stores mostly in rural towns, says more than 60 percent of its sales come from households that earn less than $35,000 per year. Dollar Tree, meanwhile, operates more than 15,000 stores in urban or suburban neighborhoods, and most of their customers earn more than $125,000 per year. Despite the different consumer bases, both chains say their customers are feeling the pinch from a soft job market, higher borrowing costs, and rising prices for rent, utilities, and healthcare.
Dollar stores are also facing increased competition from off-price retailers, such as T.J. Maxx and Marshalls, as well as big box stores. In fact, Walmart and Target have reduced prices to draw in more shoppers looking for deals, the exact type of customers normally targeted by dollar stores. “When Walmart is doing well, Dollar General struggles,” said former Dollar General executive David D’Arezzo. Dollar stores say they hope customers will start spending more in the second half of the year thanks to back-to-school, Halloween, and the upcoming winter holidays.
Questions:
- Why are consumers spending less money at dollar stores like Family Dollar?
- What are some ways that dollar stores could possibly attract more customers and increase sales?
Sources: Jinjoo Lee, “At Dollar Tree, Even Middle-Income Customers Are Pulling Back,” The Wall Street Journal, Sept. 4, 2024; Nathaniel Meyersohn, “Dollar Stores are Struggling. Blame Walmart,” CNN, Sept. 4, 2024.