Dollar stores ailing as Dollar General reports slew of problems
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Dollar stores are down in the dumps, struggling with strategic and operational breakdowns.
Why it matters: Traditionally a refuge for customers fleeing higher prices, the nation's leading dollar store chains are losing ground to big-box competitors.
Driving the news: Dollar General delivered a bruising earnings report Thursday, saying it's failing to appeal to "financially constrained" consumers.
- The company's same-store sales rose only 0.5%, trailing the rate of inflation and falling short of its own expectations.
Zoom in: The discount retailer cited a litany of other issues as well, including higher discounts; "increased inventory damages," which CFO Kelly Dilts said won't get any better in the company's next two quarters; and more sales coming from lower-margin food and drink products.
- It also blamed more theft.
The impact: Dollar General shares cratered 32% to $84.03, wiping out over $8 billion of market value.
- The company's arch rival, Dollar Tree — whose brands include the struggling Family Dollar chain — got caught in the pileup with its stock falling 10% to $84.79.
The big picture: As retailers like Walmart and Target cut prices on thousands of products, dollar stores are struggling to maintain their value proposition.
- "As inflation eases, more retailers are starting to cut prices and focus on value for money messages," writes GlobalData retail analyst Neil Saunders. "This essentially intensifies competition and gives shoppers more alternatives to Dollar General."
Behind the scenes: In addition to their financial challenges, both Dollar General and Dollar Tree have been accused of safety breakdowns in recent years, putting employees or customers at risk.
- Occupational Safety and Health Administration inspections have led to millions in penalties and settlements.
- At Family Dollar, supply chain challenges have included a rat infestation that led to massive recalls and the shuttering of a distribution center. The chain's challenges have been so severe that Dollar Tree recently announced it's closing nearly 1,000 locations and may sell the brand.
What's next: Though Dollar Tree hiked its primary price point to $1.25, Dollar General signaled it won't follow suit.
- CEO Todd Vasos said Thursday that the company still sells about 2,000 items for $1.
- "We've never walked away from that $1 price point," he said.
