No-frills dollar stores are proving their appeal, at least in terms of enticing low-income and other bargain-hunting shoppers.
Dollar General, the leader in the space, and Dollar Tree both saw their shares jump Thursday after they reported better-than-expected sales. At Dollar General, fiscal Q1 comparable sales, a closely watched performance metric that excludes the impact of newly opened and closed stores, rose 3.8% in the quarter that ended May 3. That followed 29 years of straight annual gains.
“We operate in the most attractive sector of retail,” Todd Vasos, Dollar General’s chief executive officer, said on a conference call Thursday, adding that independent research showed the company had gained market share. “Our core consumers continue to come in more often and spend more. We are (also) attracting the higher-end consumer.”
In fact, he said, those who “make a little more money” than the chain’s average low-income shoppers represent the fastest-growing customer segment for Dollar General.
At Dollar Tree, same-store sales rose 2.2%, the 45th straight quarterly increase. Growth was led by its eponymous chain as the retailer attempts a turnaround at Family Dollar, its lagging acquisition.
Dollar General shares shot up 7.2% to close at a record high. Dollar Tree stock closed up more than 3%.
At a time when retailers including Victoria’s Secret and Gap are shrinking their physical footprints and others like Payless ShoeSource are liquidating, Dollar General, which had nearly 15,600 stores as of May 3, is still expanding.
The company has said it plans to open 975 stores this year and remodel or relocate 1,100 stores.
“Amidst a sea of uncertainty across retail, particularly in both apparel and at the high end, we prefer the low end today,” Gordon Haskett analyst Chuck Grom said in a report.
Part of dollar stores’ growing appeal is their doubling down on convenience-store-type offerings. Both retailers have added more coolers and freezers to stock perishable and other refrigerated items to attract customers. Dollar General in March also rolled out DG Fresh to take distribution of perishable items in-house to help cut product costs and better keep them in stock.
“Our cooler program continues to be one of the key drivers in our success so far in 2019 and what we’ve seen in the past,” Vasos said.
Both retailers also are expanding in nonconsumable items like party merchandise that are more profitable than the traffic-driving daily essential goods. Dollar General, for instance, unveiled a Believe Beauty private-label cosmetics line and said it’s adding more home and seasonal merchandise, which Vasos said has had a positive “halo effect” in helping to increase consumables sales.
In April, the company announced a partnership with Western Union to allow customers to transfer money at most of its stores, in another traffic-driving move.
Dollar Tree, for its part, has said it’ll add alcohol to 1,000 Family Dollar stores. At its eponymous 7,100-store chain, long known for selling everything for $1, it’s begun testing selling products at more than $1 at some stores.
That move, which risks alienating some shoppers, could be necessary, especially as dollar store chains brace for different cost pressures. Both companies, for instance, said higher fuel prices had increased transportation costs.
Meanwhile, should the U.S.-China trade war escalate—the latest threat from the U.S. is tariffs on another $300 billion worth of Chinese imports—that would result in higher prices for customers, both companies said. Like other retailers, the companies said they are trying to mitigate the impact, including diversifying sourcing to other countries and redesigning merchandise.
“We watch price very closely,” Vasos said. “We are doing everything to soften the blow.”
In their most recent annual reports, both companies cited the tariff war as a risk factor. China represents a “substantial” amount of imported merchandise, both said in the filings.
If additional tariffs are implemented, “we expect that it will be impactful to both our business and especially to consumers in general,” Dollar Tree president and CEO Gary Philbin said in a statement.
Date: June 06, 2019