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- Dollar stores have long been regarded as resilient in both good and bad economies.
- But recent earnings for Dollar General and Dollar Tree show both companies have hit rough patches.
- Analysts and employees say inflation and chaotic, understaffed stores are taking their toll.
Back in May 2020, when the pandemic was just beginning, Dollar General CEO Todd Vasos summed up the resilience of his chain.
"We do very good in good times, and we do fabulous in bad times," Vasos said on an earnings call. The numbers backed it up: Despite COVID, Dollar General was doing better than ever and had just smashed expectations for its first quarter.
But four years later, Dollar General — and Dollar Tree, its main rival — are seeing a slowdown.
Dollar General's same-store sales for 2023 rose just 0.2%, a much slower clip than the 4.3% it posted for 2022, according to earnings released in March.
And rival Dollar Tree is closing 1,000 Family Dollar stores after spending nearly a decade trying to integrate the chain into its business.
Some of the troubles facing dollar stores are partly due to the economy and many shoppers having to cope with higher prices — which seems ironic, given their reputation for low prices for goods like bathroom cleaner and fake eyelashes. But there are also self-inflicted issues that both of the major chains are dealing with.
Shoppers are struggling to afford food — meaning less spending on other items.
Thanks to historically high inflation over the past few years, dollar stores have attracted wealthier customers. But that hasn't been enough to offset less spending by core shoppers: Poorer Americans, who can't afford to buy from many other stores.
Many of those customers have cut back their spending on non-essentials, such as new clothes and home decor, to shore up their budgets for food and personal care items, Dollar General and Dollar Tree indicated in recent earnings reports. Some dollar store shoppers are also relying more on credit cards and borrowing from friends to cover their expenses.
Dollar stores are also among the retailers hit by the expiration of enhanced food stamp benefits a year ago. Bonus government aid early in the pandemic had benefited stores as many shoppers found themselves with extra spending money.
And shoppers are likely to keep focusing on groceries and other consumables throughout 2024, analysts at Bank of America led by Robert Ohmes wrote last month. Since selling food tends to be the least profitable part of a retailer's business, that'll make it harder for Dollar General to turn a profit, the analysts wrote.
Messy stores and understaffing have caught up to Dollar General and Dollar Tree.
The dollar store brands' problems don't just have to do with the economy. It's also a store experience issue.
Many lack the staffing that they once had. Stores used to have multiple employees on duty at a time, making it possible to ring up customers and unload the weekly inventory shipment simultaneously.
One Dollar Tree store manager in Minnesota who worked for the company for a decade-and-a-half until 2022 said that his bosses allocated his store an average of 270 worker hours each week for most of his tenure.
Around 2022, that number fell as low as 170 as Dollar Tree looked for ways to cut costs, the manager said. That often led to a single employee trying to juggle all the duties of running a store at once. And when the store ran out of hours, or no one was available to work, the manager would end up running the store himself. As salaried employees, Dollar Tree managers don't get paid for overtime or picking up shifts that are supposed to go to hourly employees.
"I always referred to myself as a 'glorified cashier' making salary because I spent so much time there," the manager said. "I would go in at 5 a.m. four days a week." A Dollar Tree spokesperson did not respond to a request for comment from Business Insider.
Employees at Dollar General have also indicated that similar cuts to hours have happened in recent years.
The result: Many dollar stores have more items than they can sell. Often, the products block aisles and create fire hazards. Overworked employees, meanwhile, have been turning in their badges and finding other work.
Now, the results of messy and understaffed stores have hit the companies' bottom lines. Shrink, a retail industry term for product that goes missing or has to be written off, has soared at both dollar store chains lately, for example. While theft is part of the reason, the companies have also had to heavily discount or dispose of excess inventory.
In response, the companies — especially Dollar General — are making changes. Dollar General executives have outlined plans over the past few months, including removing self-checkout from 300 stores to reduce shoplifting, cutting the number of products in stores, and deploying "smart teams" to stores that need extra help unpacking inventory.
Selling fewer items in each store and selling more store-branded products could improve Dollar General's profit margin, according to BofA's analysts. But they added that they still "see retail labor and other store-level costs as continued risks."
It's not the end of the dollar store, though. Despite their problems, both Dollar General and Dollar Tree are likely to do well in the long run, given their focus on discount groceries and other goods, UBS analysts led by Michael Lasser wrote in March.
Both chains "are making progress to restore the consistent earnings growth that they have produced in the past," the analysts wrote.
Do you work at Dollar General, Dollar Tree, or Family Dollar and have a story idea to share? Reach out to this reporter at abitter@businessinsider.com