It is a fairly typical dollar store shopping haul: aspirin, facial tissues, a bag of flavoured popcorn and a bottle of Diet Coke.
And Yahaira Martinez, who is leaving a Dollar General store in Newark, New Jersey with a shopping trolley containing the items, is a fairly typical dollar store customer. The 45-year-old works nights as a security guard and days caring for a family member. Most days she says she feels like a robot just trying to keep up with rent, a car loan and insurance, let alone food.
She likes Dollar General’s prices but has been buying less there lately. “It’s horrible. Prices are going [up] too much,” she says. “It’s like we’re all being forced to go on a diet.”
Chains like Dollar General and Dollar Tree, which also owns Family Dollar, accounted for about 10 per cent of the US general merchandise sales in the year to July, according to data provider Circana. But for poorer consumers they have become critical sources of food and basic goods.
A majority of Dollar General’s customers live in households earning below $35,000 a year, according to chief executive Todd Vasos; the national median is more than twice that. Over 40 per cent of Family Dollar customers are eligible for government financial assistance.
The chains have sprawling estates of relatively small stores — the three big names alone have more than 36,000 outlets — and an operating model that historically focused on low costs, limited ranges and low prices, originally pegged at $1.
For many years that formula generated impressive returns for investors, even during recessions in the wider economy. But in recent weeks, both Dollar General and Dollar Tree have cut their sales outlooks and warned of pressure on their core consumers, triggering fierce sell-offs in their stock prices.
Raging inflation and the rising interest rates that followed it disproportionately affected lower-income customers. Dollar stores have become real-time indicators of the financial strains at the lower end of America’s income distribution.
How working class Americans feel about the economy will be pivotal in November’s presidential election. The legacy of the inflation surge of 2021 and 2022 has provided Republican challenger Donald Trump with a potent line of attack against Democratic rival Kamala Harris. “People can’t go out and buy cereal, bacon or eggs or anything else,” the former president said as he debated Harris on Tuesday.
Martinez says she wants to know which candidate is more likely to bring prices down. “Right now I’m independent,” she said. “I’m more Democrat, but I’m like, sometimes it’s not even worth it to vote any more.”
Nearly half of all US consumers blame high prices for eroding their personal finances, even as their outlook has brightened from the historic lows of two years ago, according to the most recent University of Michigan survey.
Demand from households with sub-$50,000 incomes began to decline in March, according to an index of consumer health from Morning Consult, a research company. As of August, it pointed to a 7 per cent contraction in their spending, even as well-off households still showed growth.
At Dollar General, more customers are “resorting to using credit cards for basic household needs,” Vasos told analysts on a recent earnings call. He added that shopper surveys show about 30 per cent have maxed out at least one card and a quarter expect to miss a bill payment in the next six months.
“When things start to move south in the economy, our core customer feels it first,” Vasos said at the Goldman Sachs Global Retailing Conference last week, held in a Manhattan hotel a 25-minute train ride from Newark.
But the companies have made their own mis-steps too, including regulatory run-ins over card fees and health and safety transgressions, and some are now asking whether the entire business model is running out of road.
“Consumer behaviour seems to have changed,” says Joe Feldman, a retail analyst at Telsey Advisory Group. “There are more options to buy value-priced goods, and some of the competition has gotten better at offering very competitive prices.”
Selling everything for $1 was sacred to Macon Brock, who in 1986 opened the first Dollar Tree store along with his brother-in-law and another executive in the toy store business.
Whether it was for a box of pencils or a jar of pickles, “our commitment to the dollar changed the dollar itself, restored it as a viable unit of United States currency,” he wrote in One Buck at a Time, an autobiography published months before his death in 2017.
Dollar stores have antecedents in the five and dime stores pioneered by F W Woolworth in the 19th century, which offered household wares and dry goods in downtowns across the country.
Cal Turner Sr opened the first Dollar General in Kentucky in 1955. Family Dollar opened four years later in North Carolina. Its founder, Leon Levine, picked new locations by looking for fresh oil stains on supermarket parking lots, believing they were a sign that locals lacked enough cash to maintain their cars, according to the Charlotte Observer.
Although they share the same basic characteristics, the three chains have subtle differences, not least that, until recently, Dollar Tree was the only major operator to still maintain an “everything is $1” pricing model.
Dollar General’s locations are weighted more heavily to rural areas, with 80 per cent of its stores in towns smaller than 20,000 people. Its outlet in Pencil Bluff in Arkansas serves a population of just 72.
Family Dollar, whose stores are mainly in poor urban neighbourhoods and country towns, offers a variety of packaged and frozen foods, cleaning supplies, cheap clothes and household essentials. By contrast, Dollar Tree stores carry a greater proportion of discretionary items: scented candles, birdhouse kits, art supplies and balloons. It has a bigger presence in middle-class suburbs.
Growth has largely been driven by store rollout programmes. Dollar Tree and Dollar General have added 12,500 more stores over the past decade alone — more than Walmart, Target, Costco and the major supermarket chains combined.
Dollar stores’ revenue, profits and stock prices surged in 2021 and 2022 despite the challenges of getting goods from factories in Asia to stores in the US. The savings of lower-income households temporarily swelled thanks to federal stimulus payments, unemployment insurance and a boost to government food subsidies in response to the pandemic.
But the last stimulus payments were disbursed in 2021 and pandemic food subsidies expired in March 2023. “Lower-income households have exhausted all of their savings,” says Ryan Sweet, chief US economist at Oxford Economics.
Inflation is now subsiding, but consumer prices are still 23 per cent higher than five years ago, while rent and car insurance costs continue to escalate.
Dollar Tree’s chief operating officer Michael Creedon told analysts recently that in the latest quarter “inflation, interest rates and other macro pressures have a more pronounced impact on buying behaviour”, even among customers earning more than $125,000 a year. Pressures had already been building on lower-income shoppers at Family Dollar, executives said.
Inside the companies, higher costs for merchandise, freight and wages meant something had to give. Brock had once said the $1 price “was, and is, for always” but in 2021 Dollar Tree moved it to $1.25.
“There literally was no choice,” says Alasdair James, the company’s executive vice-president of merchandising and supply chain at the time. He adds that Dollar Tree’s supply chain costs had risen by a factor of eight as the Covid-19 crisis played havoc with global freight markets.
At dollar stores, staffing was always minimal to keep costs down. But James says that, as workers quit en masse during the pandemic, often only one person was left to both run the cash register and restock the shelves.
The spread of self-checkout kiosks led to more theft while the shopping environment deteriorated. In July, Dollar General agreed to pay $12mn in a settlement with the federal Occupational Safety and Health Administration (Osha) after inspectors found stores with emergency exits, electrical panels and fire extinguishers blocked by stacks of merchandise.
“The model fell over,” says James. “The store environments became horrendous. And so people stopped shopping, in simple terms.”
Last year, Dollar Tree agreed to pay $1.35mn in penalties after Osha alleged more than 300 similar violations over the preceding four years. “It’s time they put worker safety over profits,” Robert Sestito, an Osha area director in Rhode Island, said in a press release.
And this February, Family Dollar was hit with $42mn in fines after pleading guilty to operating an Arkansas warehouse infested with rats, mice and birds. Food and Drug Administration inspectors found breakfast cereal and sunflower seeds spilled and mixed with rodent faeces, bird droppings on chocolate protein shakes and baby wipes stained with urine.
After the warehouse was fumigated and closed down in 2022, the carcasses of 1,270 rodents were discovered. The company reopened it this year, Creedon told analysts last week.
Dollar stores have responded by changing top executives, but they are sticking with the broader strategy of opening more stores.
Todd Vasos, who had recently retired, was brought back as chief executive of Dollar General last October “to restore stability and confidence in the company” after a run of weakening sales and a sliding stock price.
Dollar Tree appointed Rick Dreiling, a former Dollar General chief executive, as executive chair in 2022 after pressure from hedge fund Mantle Ridge. He was additionally made chief executive in 2023. Dreiling has introduced higher price points like $3, $4 and $5 for new items ranging from frozen pizzas to folding step stools in a bid to invigorate sales.
Earlier this year the company said it would shut down 970 Family Dollar stores and has since put the business — acquired for $8.5bn in 2015 — under review for a possible sale following a campaign by Starboard, another activist investor.
But it still aims to grow the Dollar Tree estate, adding a net 450 locations in the past year and acquiring 170 stores from 99 Cents Only, a California-headquartered chain that filed for bankruptcy. Dollar General plans another 730 new store openings this year.
Their presence isn’t universally welcomed. Dozens of municipalities have passed policies to curb their spread. In 2019, the city of Akron in Ohio forced new dollar stores on to highway shopping strips and out of neighbourhoods, keeping them at least a half-mile away from existing stores because they had “reached a saturation point”.
The city authorities said discount stores “tend to employ fewer people than the grocery stores they eliminate” and “often trigger the closure of grocery stores, thus reducing access to fresh food”. Parking lots would fill with litter outside stores with just one manager inside, said Akron zoning manager Michael Antenucci.
The Consumer Financial Protection Bureau last month said dollar stores have been at the leading edge of a trend of charging hefty fees to get cash back when paying with a debit card. At Dollar General, this levy can be as much as $2.50 for a maximum cashback amount of $40 — equivalent to 6.25 per cent, according to the CFPB. Dollar General declined to comment on the CFPB report.
Analysts and executives debate the extent to which dollar stores’ current slowdown is a portent for the US economy or a sign of a shift in the hyper-competitive retail marketplace. Walmart, famous for its aggressive competition on prices, reported a robust increase in US sales during its latest quarter.
“So far, we aren’t experiencing a weaker consumer overall,” chief executive Doug McMillon told analysts. On a recent afternoon, the parking lot of Walmart’s Supercenter in Kearny, New Jersey — a three-mile drive from the Newark Dollar General — was clogged with cars and shoppers.
Costco, which operates a membership model catering to slightly more affluent customers, has also reported strong same-store sales growth.
A typical edge-of-town Supercenter sprawls over 180,000 square feet and employs around 300 people. Dollar stores are on average about 8,000 sq ft and carry a fraction of a Supercenter’s roughly 120,000 individual products. But they tend to be more convenient, often within walking distance for urban neighbourhoods and a shorter drive in rural locales.
Many customers combine dollar-store shopping with trips to other retailers. Tiffany Roman, a 26-year-old clerk at a trucking company, says as she walks out of Dollar Tree in Kearny that “it was better everything was really a dollar” — before divulging that her next destination was the Target hypermarket across the parking lot.
Dollar stores have lost about 1.6 percentage points of market share in general merchandise since 2022, according to Circana. Sales of home decor lines such as artificial houseplants and picture frames have decreased the most as customers focus on necessities. But they have gained share in the retail food and beverage market in the first half of the year, Circana said.
“In the long run, these chains are not going away. They are so important to the fabric of people just above the poverty line in America,” says Adam Ifshin, chief executive of DLC, a shopping centre owner that leases dozens of properties to dollar stores.
“You cannot overstate the importance of these types of chains to a household that lives pay cheque to pay cheque.”
Data visualisation by Oliver Roeder and Aditi Bhandari
