What dollar stores’ success says about the economy

Much like discounters, dollar stores had a strong Q3. But good news for Dollar Tree and Dollar General might be a bad omen for the economy.

Dollar Tree’s net sales rose 9.4% year over year (YoY) in Q3, while same-store sales were up 4.2% YoY and net income by 4.8%. The chain raised its annual earnings, profit, and same store sales forecasts. Dollar General likewise raised its guidance for annual profit, earnings, and same-store sales. Its net sales were up 4.6% YoY last quarter, and same-store sales grew 2.5%. Its operating profit surged 31.5% YoY, while its earnings per share rose 43.8%.

Feeling the pinch: Dollar stores have performed well despite the fact that the lower-income consumers who typically patronize them—Dollar General’s core customers have household incomes below $35,000, according to Reuters—are feeling strapped. Dollar General “saw more frequent trips but smaller baskets. And these are all hallmarks of a consumer that is strained,” Mark Malek, chief investment officer at Muriel Siebert & Co., told CFO Brew.

Other retailers, like Walmart, have pointed to the fact that this demographic is struggling, according to Malek, who said the retailer is “talking about clients making value decisions and that is their way of saying that their customers are moving from hard goods, high margin goods” such as toys and clothing toward essentials like food.

But in this environment, discounters like the TJX Companies “that try to focus on lower price points and more budget conscious consumers” are thriving, Malek said. As Dollar Tree CEO Michael Creedon said during an earnings call, “lower-income households are depending on us more than ever.” In Q3, he said, average spending for this group grew more than twice as fast as higher-income consumers’.

Trading down: Dollar stores have also gotten a boost recently from higher-income consumers. Around 3 million more households shopped at Dollar Tree in Q3 than in the same period in 2024, Creedon said, and around 60% of the new shoppers were from “higher-income households, those earning over $100,000.” Another 30% of the increased foot traffic came from households making between $60,000 and $100,000, he said. Dollar General CEO Todd Vasos said that customer count had grown at that chain, too, “with disproportionate growth coming from higher-income households.”

One reason why may be that consumers typically considered better-off are feeling the pinch of higher prices. “Basic things now across the board are just more expensive,” Malek said, and that’s led to higher-end consumers “becoming a more select group,” while more people are “getting sucked into that middle strata.”

The (low) price is right: Consumers are also feeling more price-conscious, Malek said, as they’re feeling the cumulative effects of inflation atop already high prices.

That price sensitivity could translate to gains for stores that emphasize low prices (even to the point of having “dollar” right in their names). Creedon said 85% of items at Dollar Tree are priced at $2 or less. At Dollar General, around a quarter of products cost $1 or less. Its internal surveys show that price point really matters to lower-income consumers, Vasos said. The low-cost merchandise affects price perception storewide, he said, creating “a halo effect on price in totality within the Dollar General organization.”