Discounters, Off-Price Retailers Face A Future Without Stimulus Checks

While the final round of $1,400 stimulus checks issued in March may feel like ancient history to some, for the retailers that cater to the bargain-hunting and budget-minded consumers that received those funds, each passing day — and quarter — is a cold reminder that these one-time cash injections are never coming back.

This on a day when no less than three national discount and off-price retail chains have posted  trailing results that were artificially — and briefly — bloated by stimulus. How they plan to face the future without it is an entirely different story, as the pressure to find new ways to keep shoppers visiting their stores and websites is mounting.

With over 17,000 stores in 33 states, the $47 billion discounting colossus Dollar General said Thursday (May 27) that the way forward for it would include more stores, additional renovations and expansions, as well as ongoing rollout of its new “pOpshelf” brand concept store that debuted last fall.

“During the first quarter, we executed more than 800 real estate projects, including new store openings in our pOpshelf and larger footprint Dollar General formats,” CEO Todd Vasos said, while noting a nearly 5 percent decline in same store sales in the first quarter, and reduced traffic.

“The Company believes consumer behavior driven by government stimulus payments had a significant positive effect on sales in its non-consumable product categories,” the earnings release continued, while projecting an improved comp sales outlook range of plus or minus 1 percent.

Other Headwinds

For its part, the parent of Burlington Coat Factory also acknowledged the trailing tailwind effect of stimulus in its first-quarter results, but struck a more cautious outlook in the face of emerging new challenges.

“There were numerous factors that contributed to improved traffic and consumer spending in the [first] quarter — including the latest stimulus checks, the pace of the vaccine roll-out, and pent-up consumer demand,” CEO Michael O’Sullivan said.

While the Burlington chief said the second quarter was “off to a good start,” O’Sullivan said the company was not providing sales or earnings guidance for the year given the uncertainty surrounding the pace of the recovery of consumer demand and the ongoing COVID-19 pandemic.

“The go-forward sales trend remains very difficult to predict,” O’Sullivan said. “Meanwhile, expense headwinds in supply chain and freight have continued to deteriorate, and these are likely to weigh on our operating margin throughout the balance of the year.”

Like its rivals, Burlington is also planning on opening 100 new stores and closing 25 others  within an existing portfolio of 784 locations.

The Tree Is Growing

Not to be outdone, discounter Dollar Tree unveiled the most aggressive growth and transformation update of the day, in tandem with record first-quarter earnings and combined same-store sales growth of 1 percent at its Family Dollar and namesake brands versus very high comps one year ago.

“Looking forward, I am most excited about the growth of Dollar Tree Plus! and our strategic store formats, which shoppers are responding to favorably, as evidenced by market share gains and improved customer satisfaction scores,” CEO Michael Witynski said, while noting record first quarter performance and the company’s best post-merger quarterly operating profit.

Witynski said the gains were due in part to a favorable sales mix and reduced markdowns which were partially offset by higher freight costs.

Going forward, the operator of nearly 16,000 locations said it plans to open 600 new stores and to renovate 1,250 Family Dollar stores this year, including 400 Dollar Trees and 200 Family Dollars as well as more of its “combo store” formats.

While that store base growth will help in the long term, Dollar Tree’s full year earnings and sales guidance were below expectations, a disappointment that has seen its stock retreat by 12 percent in the past month.