Why dollar stores aren’t doing as well as you might expect
Kathryn Snearly has been a devoted dollar store shopper for over a decade now. When she was a middle school Spanish teacher, she’d go to stock her classroom.
“[I’d buy] pencil pouches, school supplies,” she said. “Also, especially if kids came to school and they didn’t have what they needed, I could just go to the dollar store and have some supplies on hand because all that money was coming out of my own pocket.”
Today, Snearly is a full-time content creator under the name Do It On A Dime. She shares organization and crafting projects, often with dollar store stuff. That’s partly because of the price and partly because of the convenience. There’s always a location near her in Charlotte, North Carolina.
“There are a lot where I live,” she said. “You can drive 10 minutes and get to a Dollar Tree, 15 maybe depending on if you’re in a more rural area.”
Dollar stores became more popular as inflation rose. Value-conscious shoppers were flocking to them and many of these retailers were opening new stores to capitalize on and keep up with demand. That’s usually what happens when peoples’ wallets are strained: discount stores win.
But now, Dollar General is seeing profits fade. And the company that owns Dollar Tree and Family Dollar plan on closing 1,000 stores.
One reason behind the change in dollar store fortunes is their incredible growth. Between Dollar Tree, Dollar General, Family Dollar and Five Below there’s just too much competition.
“Because now I’ve got 40,000 stores in the country where I had, you know, 25,000 a decade ago,” said John Strong, a finance professor at William and Mary. “And so, the same store sales are just not as robust as they used to be.”
Dollar stores have tried to become more essential by selling groceries. Something like 75% of what many of them sell is food, according to Strong.
But in the meantime, affordable retailers have been expanding — and stealing dollar store customers. ALDI plans on opening 800 locations in the next five years. Walmart, already the biggest U.S. grocer, will open 150. And its reach is growing with its subscription service Walmart+.
“Being able to order things from Walmart and have them deliver, you know, within a day or two, really does have an effect on dollar stores,” Strong said.
Another problem is that dollar stores pull in a narrow segment of shoppers, who are mostly low-income. Retailers like Family Dollar just haven’t been able to capture the middle class.
“Walmart and Costco and TJ Maxx and Ross and Burlington have all performed very, very well because the consumers are shopping at them more frequently in an effort to save money,” said Joseph Feldman, a retail analyst at Telsey Advisory Group. “They’re just not trading all the way down to the dollar stores.”
That’s partly because when it comes to unit price, dollar stores are not necessarily cheaper. For instance, a quick comparison of Dove soap bars puts the purchase at $1.25 per bar at Dollar Tree versus $1.15 at Costco. Plus, the Costco bars are bigger.
“The pack sizes at dollar stores are smaller and designed around convenience,” said Feldman. “And, you know, the price point of those packs are low in order to help the consumer to stretch their dollars.”
It’s why customers who can afford to buy in bulk often find better value at warehouse stores. That can feel especially true since now, not everything at the dollar store is $1, but $1.25, $1.50 or even $5.
“You do have to be careful,” said Snearly. “Not everything is a better deal there.” The increases kind of erase her price references and her understanding of value.
“I do have to walk into the dollar stores now with a very heightened and keen awareness of what things cost other places, more so than I ever had to in the past,” she said.
That goes against part of what made dollar stores delightful: that shopping there felt kind of mindless in this way that might mimic what it feels like to not worry so much about money.