Increasing Prices Are Pushing Consumers to Dollar Stores

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The Great Recession in 2008, which pushed many Americans into financial hardship, made them more likely to shop at dollar stores and inspired others to visit such stores for the first time. Now, more than a decade after the same phenomenon appeared at US discount chains, shoppers are turning to these outlets again in an effort to manage sky-high gas prices and the fastest growth in inflation in 40 years.

Surging inflation

The economy today is faring better than it was during the financial crisis 14 years ago, a period when unemployment was high, and wages were stagnant. Today, more people have jobs, and wages are rising faster than in decades. Other economic indicators are positive as well. But inflation has risen sharply in recent months, with the Consumer Price Index spiking by 8.3% in 12 months. This means that workers’ fatter paychecks are not keeping up with the rising cost of essentials like food and energy.

Despite strong consumer spending, retailers including Walmart and Target say shoppers are changing their buying habits. As consumers become more concerned about their financial security, they buy fewer big-ticket items, such as electronics and furniture, and focus on necessities like food and household staples. Dollar stores benefit from this spending shift since they mainly sell food and household items in individual packages.

Growth of dollar chains

Dollar chains have seen tremendous growth since the Great Recession, adding thousands of new stores and widening their product selection to lure customers away from convenience stores, pharmacies, and supermarkets. Dollar General’s CEO Todd Vasos said on an earnings call that the company’s primary customers — individuals with annual household incomes under $40,000 — are making more intentional purchases.

Gas prices at $5 a gallon have prompted customers to focus on driving to the nearest stores, Vasos said. This is an opportunity for Dollar General, which has approximately 19,000 stores and often is the sole retailer in rural areas. Even higher-income shoppers have started shifting more of their purchases to the company. He stated, “Shopping patterns are definitely changing, and we’re seeing it happen right before our eyes.”

Dollar General’s plan to add more $1 products and inexpensive, private-label brands to its stores reflects the company’s effort to appeal to cash-strapped consumers. Dollar Tree (DLTR) reported that customers who are concerned with higher gas, rent, heating, and food costs are increasingly visiting its stores. The chain, targeting consumers with slightly higher incomes, recently increased its base price from $1 to $1.25.

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