So much for blaming the weather for shoppers’ foul mood earlier this year.
The snow has long since melted, and the polar vortex is a distant memory, but low-income shoppers are still being careful with their money, dampening the sales results of dollar stores and discount chains well into the spring.
Dollar General (DG) CEO Rick Dreiling told investors on Tuesday that while he had expected the pressure he had seen over the winter to promote aggressively would ease, that has not happened. (Still, he did say business did improve in April compared to winter.)
So the retailer, which reported a disappointing 1.5% increase in sales at stores open at least a year for the quarter that ended May 2, is expanding its private, in-house brands, which are typically cheaper than national brands though offer a higher profit margin. Dollar General in particular will be emphasizing the lowest-priced items in brands such as its large in-house “Smart & Simple” brand, in which products range from tea bags to decorator napkins. The idea is to have something for shoppers who need to cut back on spending on nationally known brands.
“That provides a wonderful trade-down opportunity for our customers,” Dreiling said.
About 37% of Dollar General’s customers make less than $25,000, the Wall Street Journalreported this week, citing data from Prosper Insights & Analytics.
That means customers are very price sensitive, and Dollar General is also “sharpening our price points.”
“It’s really just responding to the fact that the low income consumer is trying to stretch a dollar as far as it can possibly go,” BB&T Capital Markets analyst Anthony Chukumba told Coins2Day.
Earlier this year, Family Dollar Stores (FDO) said it was cutting prices on hundreds of different kinds of items and offering many more items for $1, while Wal-Mart Stores (WMT) is making what it calls “price investments,” or price cuts in Walmart-speak. Family Dollar and Walmart US each saw comparable sales decline in their most recent quarters.
One big bright spot for Dollar General has been tobacco, which the store started selling in 2013, and its broader assortment of perishable food. But those remain relatively small parts of its business and less profitable.