Dollar Store

There are over $36,000 stores across the U. S. That's more than one store for every 10,000 people. These companies have long been Wall Street darlings. During the Great Recession in 2009, 2010, both Dollar General and Dollar Tree were two of the best performing stocks in the S&P 500 in those two years. The share price for Dollar Tree and Dollar General, the two biggest players in the space, far outpaced the S&P 500, j But over the past two years, the stocks of both companies have pl And the outlook, at least in the near term, isn't showing promising signs of recovery. We had this pretty good growth over a period of decades, but in the last decade we've added about 50 percent more stores, and that's brought a n Dollar General and Dollar Tree have both cut guidance recently, w So what's happened to dollar stores, and what do these companies need to do to get back on track? Dollar General, Dollar Tree, and Family Dollar are the three largest brands in the space. Dollar Tree owns both Family Dollar and its namesake brand. In fiscal 2023, the two companies brought in nearly $70 billion in combined revenue. All three brands have thousands of stores across the country, but target very different areas and demograp Dollar Tree sells a lot of seasonal and discretionary items, the Family Dollar chain, w Meanw The roots of dollar stores were in rural America, outer suburbs, of metro markets. It was sort of the places where there wasn't sort of a big established value retail presence. A key t Not necessarily the best value for your money. For example, t 25. It's a better quote-unquote deal to go up the road to Target and get a box of 240 of them for $10. But if $10 is your entire budget for the trip to the store, it makes more sense to go to the dollar store. On the outside, these types of stores may not look so bad. From 2019 to 2023, sales have increased by about 30% for Dollar Tree and about 40% for Dollar General. In the same time period, these companies have added over 5,000 stores. New stores will naturally increase revenues, but that can mask slow sales growth at existing locations. High inflationary times disproportionately affect lower income cons Dollar General's core customer base, we're in a strange time where the jobs market is still relatively strong, and that means middle and upper income households don't feel that same level of pressure to turn to a different store or to shop dramatically different than their everyday habits. At the same time, the core customer, those lower income customers that rely on dollar stores are getting even more selective and are tending to buy needs versus wants, things Lower margin means they are less profitable, but food and household items have become increasingly important to the dollar store customer. In its 2024 second quarter earnings call, Dollar General said it's decreased its non-cons The effective inflation is also apparent at dollar tree stores whose long differentiated strategy was a store-wide $1 price point. In 2021, that changed. Even if you just take a step back and you t And now you move to $1. 25, it reduces some of that magic overall, and it sounds silly, but it confuses the shopping experience, makes it a little more complex. Some of the dollar store's lackluster financial results can be pointed to the conditions of its physical stores. It's just a less desirable place to shop. I mean, the whole idea is that dollar stores are convenient, but if you go there and there's only one cash register open and there's eight people in line, it takes 10 to 15 minutes to check out that you're losing your convenience angle, or sometimes there's boxes in the aisle, you can't even get down the aisle because it's blocked. So my stock room is literally overflowed and looked So Tim, does your dollar general look Customers notice when a company is not minding the store. They see that there are boxes that are cluttering aisles, they notice that the item they want is out of stock, and so they may decide to go elsewhere. Dollar tree and dollar general haven't been having execution problems that have contributed to a tougher economic backdrop. Inventory challenges were especially apparent during the pandemic. The smaller sized, more affordable products normally found at dollar stores were deprioritized by manufacturers. Customers that were then going into the stores, even if they found a store that operationally okay, the store was now very different and didn't have some of the items that were the reason that they went to the discount channel in the first place. Everyt The dollar store playbook has That has long created problems for both companies. But during the pandemic, those issues were exacerbated. When COVID So then you got into t Dollar general and dollar tree have also faced n In the beginning of 2024, Family Dollar was fined over $41 million for rodent infested warehouses. Family Dollar has been a burden for the Dollar Tree brand ever since its acquisition back in 2015. It was really supposed to be sort of the Dollar General fighter. The challenge was that Family Dollar had always been the weakest of the dollar stores. It was never as profitable. It never grew as much. And because the management of Family Dollar knew that it was going to be sold, they stopped investing in lots of t So even today, I mean, you're seeing outdated technology systems, outdated distribution centers, DCs that don't have air conditioning, HVAC systems at stores that are falling apart So these are long legacy issues that Dollar Tree just didn't make the proper investments in despite now, Family Dollar is the only one of the three brands that has seen a decline in foot traffic from 2019 to 2024. And now Dollar Tree wants to get rid of it. But aside from the internal struggles that these companies are grappling with, Walmart has also become a major problem for them. When you go back to the Great Recession and the Dollar Stores were doing well, Walmart was not putting up strong same-shore sales growth. I the opposite seems to be happening today, where Walmart is putting up terrific same-shore sales growth. They're gaining share of that lower middle income wallet and they're bringing in newer middle and upper income cons Walmart is keenly aware of how good these dollar stores have been for a long time and have learned a lot from them as well. 90% of Americans live wit To put the impact of Walmart into context, the retail giant increased its U. S. sales by about $4. 5 billion in its most recent quarter. That's about 4% It's also about half the amount of Dollar General's total sales last quarter and about 60% of Dollar Tree's total sales. A big part of the retail giant's recent success is due to its investment in e-commerce. A lot of legacy brick and mortar companies So the digital capabilities of a lot of companies have also gotten a lot better in recent years. Dollar stores, because of the investments you have to make to pull off a larger online business, have not been able to move as quickly in those ways. Dollar General says that the middle and upper income cons Beyond e-commerce, another consideration is dollar stores' heavy investment in its grocery offering. At the same time, discount grocery companies S. Its location count has increased by about 1,000 stores over the past decade. I t Even as inflation normalizes, dollar stores are not well positioned to benefit. Breakdown for the three major dollar store brands Dollar General and Family Dollar are both about 80% cons Dollar Tree has far more discretionary products. President-elect Donald Tr That will affect Dollar Tree especially as the chain imports over 40% of its merchandise, mostly from C That's much Plus its fixed price, Dollar 25 model, means margins would be squeezed even tighter. The chain is focused on introducing more multi-priced items to increase spending at its stores. That core Dollar Tree model has a really nice niche. Everyt You start selling branded items at two, three, four dollars. Those are the same items that are at grocery stores or at Walmart. Maybe a sales lift, but also maybe longer term competition. The minim The dollar stores, store managers, small box, often times in rural lower cost of living locations, often times make less than $59,000 on a salary basis. If t Dollar General's CEO is on Dollar Tree's CEO announced he was stepping down at the start of November 2024. A Dollar Tree spokesperson told CNBC, Dollar Tree and Family Dollar play a vital role in providing With new leaders Dollar General declined CNBC's request for an interview or comment. With succession planning and economic uncertainty a question mark for both companies, it's increasingly clear that getting dollar store businesses back on track is going to require a multifaceted approach. Dollar stores are contending with a mix of self-inflicted problems and also problems that they're contending with because the macro economic environment is just a lot tougher. People who shop at dollar stores tend to have less income and so they are going to feel every push and pull of the economy. But at the same time, these retailers have to get their stores back in line and to draw back shoppers and build more loyalty, they need to mind the store.