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Dollar Stores’ Slowdowns Are Challenging Ideas About Their Resilience

In May 2020, when the pandemic was just beginning, Dollar General CEO Todd Vasos summed up his chain’s resilience.

“We’re doing really well in the good times, and we’re doing fabulous in the bad times,” Vasos said during an earnings conference call. The figures confirm it: Despite COVID, Dollar General was doing better than ever and had just exceeded expectations for its first quarter.

But four years later, Dollar General – and Dollar Tree, its main rival – are experiencing a slowdown.

Dollar General’s same-store sales for 2023 rose just 0.2%, a much slower pace than the 4.3% posted for 2022, according to results released in March.

And rival Dollar Tree is closing 1,000 Family Dollar stores after spending nearly a decade trying to integrate the chain into its business.

Some of the problems dollar stores face are partly due to the economy and the fact that many shoppers face higher prices — which seems ironic, given their reputation for low prices for products like bathroom cleaners and false eyelashes. But there are also self-inflicted problems facing both major chains.

Shoppers are finding it harder to afford food, which means less spending on other items.

Thanks to historically high inflation in recent years, dollar stores have attracted a wealthier clientele. But that wasn’t enough to offset lower spending by key shoppers: poorer Americans, who can’t afford to shop at many other stores.

Many of these customers cut back on non-essential spending, such as new clothing and home decor, to shore up their budget for food and personal care items, Dollar General and Dollar Tree said in recent earnings reports . Some dollar store shoppers also rely more on credit cards and borrow from friends to cover expenses.

Dollar stores are also among the retailers affected by the expiration of enhanced food stamp benefits a year ago. Bonus government aid at the start of the pandemic benefited stores as many shoppers found themselves with extra spending money.

And shoppers will likely continue to focus on groceries and other consumables throughout 2024, Bank of America analysts led by Robert Ohmes wrote last month. Since selling groceries tends to be the least profitable part of a retailer’s business, it will be harder for Dollar General to turn a profit, analysts wrote.

Messy stores and understaffing have caught up with Dollar General and Dollar Tree.

The problems with dollar store brands aren’t just about the economy. It’s also an in-store experience issue.

Many no longer have the staff they once had. In the past, stores had several employees on duty at a time, making it possible to call customers and unload the weekly shipment of inventory simultaneously.

The manager of the One Dollar Tree store in Minnesota, who worked for the company for a decade and a half until 2022, said his bosses allocated his store an average of 270 work hours per week for most of its mandate.

Around 2022, that number dropped to 170 as Dollar Tree looked for ways to cut costs, the manager said. This often led to a single employee trying to juggle all the tasks of running a store at the same time. And when the store ran out of hours or no one was available to work, the manager ended up running the store himself. As salaried employees, Dollar Tree executives are not paid for overtime or shifts expected to go to hourly employees.

“I always referred to myself as a ‘glorified cashier’ who earned a salary because I spent a lot of time there,” the manager said. “I went there at 5 a.m. four days a week.” A Dollar Tree spokesperson did not respond to a request for comment from Business Insider.

Dollar General employees also said similar hours reductions have taken place in recent years.

The result: Many dollar stores carry more items than they can sell. Often, products block walkways and create fire hazards. Meanwhile, overworked employees surrender their badges and find another job.

Today, the results of messy and understaffed stores have affected companies’ bottom lines. Shrink, a retail industry term for a product that disappears or must be written off, has recently gained momentum at both dollar store chains, for example. Although theft is partly to blame, businesses have also had to significantly reduce or eliminate excess inventory.

In response, companies – particularly Dollar General – are making changes. Dollar General executives have outlined their plans in recent months, including removing self-checkouts at 300 stores to reduce shoplifting, reducing the number of products in stores and deploying “teams smart” in stores that need extra help unpacking their inventory.

According to BofA analysts, selling fewer items in each store and selling more branded products could improve Dollar General’s profit margin. But they added that they “still view retail labor and other store-level costs as ongoing risks.”

This isn’t the end of the dollar store, however. Despite their problems, Dollar General and Dollar Tree should do well over the long term, given their focus on discount groceries and other goods, UBS analysts led by Michael Lasser wrote in March.

Both chains “are making progress toward restoring the consistent profit growth they have produced in the past,” the analysts write.

Do you work at Dollar General, Dollar Tree or Family Dollar and have a story idea to share? Contact this reporter at abitter@businessinsider.com

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