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With low- and middle-income shoppers both pulling back and big box chains such as Walmart and Target increasing their value offerings, discounters Dollar Tree and Dollar General are trying out new business models to stay relevant.
For Dollar General, that means simplification: tighter inventories, fewer SKUs. For Dollar Tree, that means more variety: multiple price options for the same item.
Both chains cut their sales outlooks for the rest of the year and pointed to a difficult macroeconomic environment for both its low and middle-income customers.
Dollar General CEO Todd Vasos told analysts that “softer employment levels” and “increased borrowing costs” hurt low-income consumer sentiment, and that middle-income households have yet to start trading down at a higher rate—in part because of the increased promotional environment across the retail sector. In short, its core consumers are struggling, and middle-income shoppers are holding off on hitting the dollar store.
Dollar Tree told a similar story. Chief Operating Officer Mike Creedon said “demand from Family Dollar’s core lower-income customer remains weak.” At the same time, higher-income shoppers are pulling back on their discretionary spending.
But how the two chains are responding to these trends diverge significantly.
Dollar General’s “Back to Basics” program is on track to reduce approximately 1,000 SKUs by the end of the year and remove 50% of off-shelf displays in the back half of the year. The goal is to keep inventory costs down and simplify work at the store. Total inventory was down 11% on a same-store basis and 16% for non-consumables.
“That simplification work we’re doing isn’t about pulling labor out,” Vasos said during the Goldman Sachs 31st Annual Global Retailing Conference. “It’s about making it easier to do the job that’s out there today for the stores.”
Dollar Tree, meanwhile, is actually expanding its assortments with multiple price options across categories, including in the struggling discretionary bucket. The company has added 75 new SKUs so far this year. Many of these new multi-price options were consumables, but more discretionary multi-price items will hit shelves later this year, which Dollar Tree expects to help it weather the macroeconomic headwinds.
“We are strong believers in the inherent strength of Dollar Tree’s differentiated business model and its long-term strategy of multi-price expansion and store growth acceleration,” Creedon said.