Shopper discretionary spending trends are impacting Family Dollar parent company Dollar Tree, as paycheck-to-paycheck consumers continue to feel squeezed in an uncertain economy.
Dollar Tree, which operates more than 16,000 stores across the U.S. and Canada, faces a challenging retail landscape as inflationary pressures weigh on shoppers, especially those from lower-income households.
“One of the keys we’re seeing is our customers are focusing on their needs,” Dollar Tree Interim CEO Michael Creedon told with analysts Wednesday (Dec. 4) during the company’s third-quarter earnings call. “We see that in our consumables. The customer is clearly buying for need and what we call closer to need. When you look at the customer cohort, our low-income customers are definitely pressured. We see that and there’s a rise in eat at home. There is belt tightening among lower-income customers and that dynamic remains a discretionary headwind.”
Creedon’s assessment dovetails with PYMNTS Intelligence data, which shows consumers of all income levels are feeling a pinch in their household finances and are focusing more on daily spending instead of splurging.
Creedon, who assumed the interim CEO post after former CEO Rick Dreiling stepped down Nov. 4, said during the earnings call that despite these challenges, consolidated net sales rose 3.5%, to $7.56 billion, fueled by a 1.8% same-store sales increase at both Dollar Tree and Family Dollar.
That growth, however, came with caveats: while foot traffic improved, many customers reduced their spending, particularly in discretionary categories.
“Middle- and higher-income cohorts are still feeling some pressure,” Creedon said. “A year ago, they were cutting out big purchases. Now they’re reducing some parties or the party is not as big, or they’re not inviting as many people.”
In response, Dollar Tree has leaned into a strategic transformation, notably the rollout of its multi-price format, now implemented in 2,311 stores, Creedon said. This initiative, which introduces new products at price points above the traditional $1 mark, is part of the company’s larger effort to adapt to changing consumer preferences.
Early results are encouraging, Creedon said. Stores with the new format saw a 3.3% increase in same-store sales and comprised 30% of third-quarter net sales.
“Customers are embracing multi-price,” he said. “It’s encouraging as multi-price unfolds. It’s still a test and learn, but we like what we’re learning and what our customers are experiencing and the feedback they’re giving us. We’re nine months into multi-price and we’ve seen increased trips and bigger baskets from consumers who have used it.”
The company’s focus on catering to “need-based” shopping reflects broader consumer trends, where frugality has replaced indulgence, Creedon said. Dollar Tree’s multi-price strategy, despite its early success in driving larger baskets and more frequent store visits, will be tested by how well it resonates with price-sensitive consumers.
Dollar Tree’s multi-price strategy aims to diversify its product range by introducing items priced between $1.50 and $7, without raising prices on existing products, he said. This initiative is designed to enhance the shopping experience and attract more customers by offering greater variety. While the transformation is still in its early stages, Dollar Tree said the multi-price format will drive long-term growth, as indicated by stronger performance in consumables and discretionary categories at the converted stores.
“We are working hard on improving the in-store experience,” he said. “Value always resonates with the customer and that’s why our business model has stood the test of time. More work needs to be done. At the end of the day, retail fundamentals are the key to unlocking value at Dollar Tree.”
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