Dollar Tree attracts wealthier shoppers as lower-income consumers pull back

A major discount chain is seeing a reshuffling of its customer base that might surprise some who think so-called dollar stores serve mainly lower-income shoppers.

On Wednesday, Dollar Tree said low-income shoppers spent less in the third quarter, as higher prices, depleted savings, and reduced government benefits hit home. “We saw a notable pullback in spending, particularly in higher-margin discretionary categories,” CEO Rick Dreiling told investors.

Citing “softening trends” among these customers, the parent company of both Dollar Tree and Family Dollar lowered its full-year sales outlook slightly and announced “a comprehensive review of our Family Dollar portfolio to address underperforming stores that are not aligned with our transformative vision for the company,” Dreiling said.

• For comparison, sales at the Dollar Tree segment increased 5.4% year over year, while Family Dollar sales grew just 2%. Store traffic, meanwhile, increased 7% for Dollar Tree and just 1.4% for Family Dollar.

The review process could result in closures, relocations, and re-bannerings of Family Dollar locations, and comes as Dollar Tree continues to renovate and invest in new technology at stores, including the rollout of a mobile app at Family Dollar earlier this year.

Going forward, Dollar Tree plans to employ more distinct go-to-market strategies for each brand. Dreiling explained that Dollar Tree will focus on customers interested in the “thrill of the treasure hunt,” while Family Dollar will focus more on offering a traditional experience focused on consistently available consumables.

Trading down: One positive signal for Dollar Tree was an uptick in the number of higher-income customers who appear to be trading down to the discount chain.

“Most of our new customers over the past year have household incomes over $125,000, and this income demographic was a significant contributor to Dollar Tree’s quarter three comp growth,” Dreiling said.