Inflation pushed the wealthy to shop at dollar stores. Now even those places are seeing people get tighter with their money. – DAVID RAUDALES

DAVID RAUDALES

Businessman, musician / former Full Stack Developer

DAVID RAUDALES UK

Inflation pushed the wealthy to shop at dollar stores. Now even those places are seeing people get tighter with their money.

Dollar General sign and a person dressed as Mr. Monopoly, “Milburn Pennybags.”

Jakub Porzycki/NurPhoto via Getty Images; MANDEL NGAN/AFP via Getty Images

During the pandemic, more people with higher incomes started shopping at dollar stores.Now, even the dollar stores are starting to struggle in a bad sign for the economy.Shoppers are spending less on discretionary products and more on essentials. 

Where do people go to save money when they are already shopping at dollar stores and are starting to find that even some of those products are too expensive? They keep shopping in dollar stores, but they spend more time in the aisles with the most important products.

In a recent earnings call with investors, Dollar General reported that sales were down over the summer compared to the spring when sales were steady. Higher prices and interest rates were the reasons for more cautious spending among their customers.

“Our core customers continue to tell us they feel financially constrained,” Dollar General CEO Jeff Owen told The Wall Street Journal. “Her savings are gone, and so certainly she is still living with the inflationary pressures.”

Both Dollar General and its top rival, Dollar Tree, saw their customers spending less on discretionary, non-essential purchases, like electronics and toys, and were spending more on essential items for the household, including food, the Wall Street Journal reported.

This echoed what Owen said in June at the company’s first-quarter earnings call. However, at that time, he cited lower-than-expect tax refunds for customers having less discretionary income.

Inside a Dollar General store.

Justin Sullivan/Getty Images

This is yet another worrisome sign for the US economy as wealthier Americans have already increased their shopping at dollar stores looking for better values.

In mid-2022, both Dollar General and Dollar Tree reported increased sales and noticed a rise in high-income customers.

Dollar Tree’s CEO, Mike Witynski, said during the 2022 second quarter that most of the store’s new customers from the previous 12 months had been from households making $80,000 or more per year.

Witynski said during his company’s earnings call that “our consumers are relying on our stores to meet their budget goals.”

Last September, Dollar General’s then-CEO Todd Vasos told CNN that its biggest sales boost had come from people making between $75,000 and $100,000 per year. He also noted that its “core customers” at the time typically earn under $40,000 annually.

Just before the pandemic struck, Dollar General had already started to make changes to attract wealthier customers. Specifically, it started to add more discretionary items with higher profit margins to its shelves, including home furnishings and party supplies.

But now, in addition to lower sales, Dollar General is dealing with an overflow of inventory. The store has started to mark down some products to just $0.01 to help clear shelves, even though it will eat at their profits.

A Dollar Tree store.

Alex Bitter/Insider

Other businesses benefited from inflation

This recent surge in wealthier customers is not limited to just dollar stores. In 2022, more affordable restaurants like Applebee’s, IHOP, and Chipotle reported more sales from higher-income customers.

Walmart also credited nearly 75% of market-share gains in early 2022 to customers with annual household incomes of $100,000 or more.

While new customers have flocked to these businesses, the changes in sales at the dollar stores should be a warning sign moving forward.

Read the original article on Business Insider