Dollar General’s second-quarter results show the impact of inflation on its primary customer base, and the retailer is doubling-down on in-store experiences to attract shoppers.
CEO Todd Vasos acknowledged that the company’s performance fell short of expectations, attributing it to rising prices and tightened consumer budgets, which have altered spending behaviors.
Despite a slight uptick in store traffic, the company has experienced a decline in average spending, highlighting the strain both on the retailer and its cost-conscious shoppers.
Vasos noted same-store sales growth of just 0.5% fell short of expectations. While customer traffic rose by 1%, the average transaction amount declined by 0.5%, driven by lower prices per item. This shift illustrates a trend where Dollar General’s customers, largely from lower-income households, are pinching pennies.
“This pattern suggests that our customers are less able to stretch their budgets through the end of the month,” Vasos explained during the company’s second-quarter earnings call. “With that in mind, as well as our continued softness in discretionary sales in our own customer data and survey work, we believe the softer-than-anticipated sales performance in Q2 is at least partially attributable to a core customer that is less confident of their financial position.”
Vasos noted Dollar General’s customer base, primarily households earning less than $35,000 annually, has been hit hard by rising costs. Inflation has stretched their budgets, forcing many to forgo basic necessities and rely more heavily on credit cards for essential purchases.
“As a result, our core customer, who contributes approximately 60% of our overall sales, comes predominantly from households earning less than $35,000 annually,” Vasos explained. “Inflation has continued to negatively impact these households, with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items, in addition to paying more for expenses such as rent, utilities and healthcare.
“More of our customers report that they are now resorting to using credit cards for basic household needs, and approximately 30% have at least one credit card that has reached its limit. And in our latest survey, 25% of our customers surveyed noted they anticipated missing a bill payment in the next six months.”
According to the PYMNTS Intelligence report, “New Reality Check: The Paycheck-to-Paycheck Report: Why One-Third of High Earners Live Paycheck to Paycheck,” 82% of the roughly 4,000 respondents rated inflation No. 1 among their economic concerns. As of January, 62% of consumers lived paycheck to paycheck, including 36% of those annually earning more than $200,000.
Consumers are blasting through their savings also. According to PYMNTS Intelligence in “New Reality Check: The Paycheck-to-Paycheck Report” titled, “Savings Deep Dive Edition,” on average, consumers exhaust 67% of their available savings every four years. For those living paycheck to paycheck, this depletion occurs more frequently, about every 2.5 years.
“As customers have felt more pressure on their spending, we have also seen corresponding elevation in the promotional environment beyond what we had anticipated coming into the year,” Vasos said.
“Importantly, we continue to feel very good about our everyday low-price position relative to competitors and other classes of trade. However, the increased promotional activity has pressured both sales and gross margin, and we anticipate this will likely continue for the duration of the year.”
In response to these challenges, Dollar General is implementing a back-to-basics strategy focused on core operational improvements. The company has ramped up efforts to enhance the in-store experience, including increasing employee presence and focusing on inventory management. These initiatives aim to improve customer satisfaction and boost sales.
The company’s commitment to refining its supply chain and merchandising processes appears to be paying off. Dollar General has reported improvements in inventory levels and lower turnover rates among its staff, which has improved operational efficiency and customer engagement. The enhanced shopping environment and better in-stock levels are designed to resonate with the core customer base, providing the value and convenience they seek.
“Our efforts in the stores have centered around further enhancing the customer experience to deliver the value and convenience they expect in a clean and friendly shopping environment,” Vasos said.
“We have increased the employee presence at the front end of our stores, with our associates committed to providing friendly, welcome and elevated level of engagement to our customers while also facilitating the positive checkout experience. We have also focused labor hours on perpetual inventory management in our stores in an effort to significantly improve our in-stock levels and support our sales growth.”
As part of its promotional efforts, Dollar General has focused on leveraging digital tools to attract and retain customers. This strategy has already begun to show results.
“Just like we anticipated, we’re seeing the response from the consumer,” Vasos said. “It was almost immediate. She continues to engage, especially with those digital tools. We talk to her each and every quarter, and that’s exactly what we’re offering her right now, and we’ll continue to do so. We believe that those promotional cadences will continue to garner more and more customers and more and more transactions as we move through this quarter and into next.”
