Despite indications of an improving overall economy, low-income consumers remain under considerable pressure, according to reports from two of the nation’s largest dollar-store chains.
“When you look at the economic data, you do start to see signs of improvement. Unemployment has improved, and housing is starting to pick up,” said Mary A. Winston, chief financial officer, Family Dollar, said at the Americas Select Franchise Conference sponsored by Barclay’s Capital in London last month.
“But when you look under that data at the layers of exactly where that’s happening, I think there continues to be pressure on the lower-income consumer.
“I think that consumer segment tends to lag in terms of improvement as recovery occurs. So while unemployment is improving, it’s still very high for that segment, and our expectation is there is going to continue to be pressure on that customer, and they’re going to focus on buying the things they need because they live on a fixed budget, and with fluctuations in the economy, that causes them to spend less on discretionary items.”
Accordingly, Matthews, N.C.-based Family Dollar is boosting assortments of consumables and reducing space for discretionary merchandise, Winston said.
Read more: Family Dollar Cites Pressure on Core Customers
The company has also lowered its comparable sales expectations for the second half of the year to 2% to 4%, “which is lower than what our initial aspiration was when we started the year.”
“That’s reflective of the challenges we’ve seen on the discretionary side of the business,” Winston said.
Chesapeake, Va.-based Dollar Tree expressed similar concerns in a conference call discussing its first-quarter financial results.
In response to a question, Bob Sasser, president and chief executive officer, told analysts he believes consumers are still concerned and burdened over issues relating to the economy, “and they’re just a bit weary from all that’s going on.”
“They’re facing higher taxes, which means less money overall to spend. Add to that their concerns over jobs and the uncertainty around the economy and gas prices, so the consumer is under pressure.”
Adding Coolers
Like Family Dollar, Dollar Tree also is expanding its consumables offering, saying it plans to increase the number of freezer and cooler installations this year to 550 additional stores, up from the chain’s original plan of 475.
The installation of frozen and refrigerated equipment at 229 stores during the first quarter, which ended May 4, was the most installations in a single quarter, Sasser said in the conference call.
Dollar Tree has freezers and coolers at 2,778 units, or 58% of its 4,763 locations. With plans to open 350 new stores this year, Dollar Tree will have refrigerated equipment at about 63% of its store base by year’s end, “and we like what [that] does in sales and traffic, and we like what it does in raising the sale of our variety merchandise also,” Sasser said.
The quarter marked “the first time in awhile” that sales of discretionary merchandise outpaced consumables, the company said — possibly a result of over-compensating for the early Easter holiday by pushing variety sales, Sasser explained.
“We are still committed to our consumable business. We’re going to drive that part of the business too.”
Comps Up 2.1%
For the 13-week quarter, net income rose 15% to $133.5 million, while sales were up 8.3% to $1.9 billion, and comparable store sales increased 2.1%.
The company said traffic was up 1% and average ticket rose 1.1% during the quarter.
Sasser said Dollar Tree plans to begin shipping merchandise early this month from a newly built 1 million-square-foot distribution center in Windsor, Conn., which will enable it to continue to expand in the Northeast.
Read more: Dollar Tree Posts Q4 Gains, Shuns Tobacco
He said the company is expanding a distribution center in Marietta, Okla. — from 600,000 square feet to 1 million square feet — that it expects will be operational in the third quarter.
Dollar Tree has also entered into a lease on a 350,000-square-foot building adjacent to its San Bernardino, Calif., facility that will enable it to meet growing demand in the Southwest, he added.
According to Sasser, the conversion of Dollar Giant stores in Canada is on schedule, with rebranding to the Dollar Tree banner completed in Ontario and rebranding in the western provinces scheduled to be completed by the end of the third quarter.
“We see enormous potential in Canada,” he said. “We believe that market can support up to 1,000 Dollar Tree stores, in addition to the 7,000-store potential in the U.S., plus additional growth in our Deal$ format.”
Sidebar: Survey Shows Impact on Low-Income Shoppers
JACKSONVILLE, Fla. — A survey that was scheduled to be released last week by Acosta Sales & Marketing here sheds light on the bifurcated nature of the economic recovery.
The Why? Behind the Buy survey found that overall, shoppers are reporting less difficulty in paying their bills and have less job uncertainty, among other indications that their confidence in their finances is improving. But consumers earning less than $45,000 annually are experiencing more challenges in those areas, and in many cases Hispanic shoppers were indexing even higher than low-income shoppers.
Nearly a fourth — 24% — of shoppers earning less than $45,000 a year, for example, said they had difficulty paying their bills in the last six months, compared with 16% of shoppers overall. Likewise, 11% of low-income shoppers said their household had been impacted by the loss of a job in the last six months, vs. 7% of shoppers overall and 17% of Hispanic shoppers.
Both low-income and Hispanic shoppers also indexed higher in reporting job uncertainty, with 13% of both groups saying that had impacted their households in the last six months, vs. 11% of consumers overall, and 9% of consumers earning more than $45,000 a year.
The survey also found that shoppers were making more trips both to traditional supermarkets and to dollar stores, compared with a year ago. This year about 4% more shoppers said they shopping more frequently than a year ago at dollar stores, and 2% more said they were shopping more frequently at supermarkets.
It was the third year in a show that dollar stores showed gains in frequency, and the second year in a row that supermarkets showed gains. SN's Data Points catalogs more results from the survey.
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