Discount Retailers, Dollar Stores May Show Both Consumer Spending and Pulling Back

The paycheck-to-paycheck retail economy is a mixed bag these days, with both opportunities and challenges.

Officials at Burlington Stores are excited about the new store openings and its “new store pipeline,” which includes leases from retailers going through bankruptcy. While comparable sales grew just 1% — due to “significantly warmer temperatures than last year,” according to CEO Michael O’Sullivan, the off-price clothing retailer posted earnings (Nov. 26) including an 11% rise in total sales for the third quarter, following 12% sales growth last year.

O’Sullivan noted the company is on track to open 101 new stores by the end of the year.

“Almost all of the stores that we have opened this year are our 25,000-square-foot prototype,” he shared with analysts. “And most of these stores are in busy strip malls with national co-tenants. We are making rapid progress in transforming our chain.

“As we have disclosed previously, on average, we expect new stores to run at about $7 million in sales volume in their first full year. It is early, but our 2024 new stores are running well ahead of this expectation. We expect store relocations to see an average sales lift of 10%. Again, it is early, but these run rates reinforce our confidence and our excitement in our new store program over the next several years.”

While officials at Burlington Stores are confident heading into the holiday season, three of the other leading paycheck-to-paycheck segment retailers reporting earnings later this week — Dollar Tree, Dollar General, and Five Below — don’t share the same optimism.

Shares of Dollar Tree and Dollar General have dropped about 50% this year, as they face economic pressures and self-inflicted issues. Lower-income consumers, who account for a large portion of Dollar General’s sales, are struggling with inflation, focusing on essential goods instead of higher-margin discretionary items. Meanwhile, middle- and upper-income shoppers aren’t turning to dollar stores due to a stable job market in 2024. Additionally, Dollar General has struggled to attract these customers online, a critical area where many competitors are succeeding.

According to the PYMNTS Intelligence report, “New Reality Check: The Paycheck-To-Paycheck Report: The Inflation Edition,” in collaboration with LendingClub, 55% of respondents have limited spending capacity, 49% have shifted their shopping preferences, and 66% of those living paycheck to paycheck have cut spending.

Meanwhile, Five Below is realigning its strategy to better cater to its core demographic of preteens and teens by streamlining its product assortment and reinforcing its $5-and-below pricing. This approach seeks to rebuild customer loyalty and enhance its value-driven brand identity, while optimizing operations to improve store performance and profitability.

The company is expanding its footprint into underserved markets and strengthening vendor partnerships to accelerate product delivery. But the company has faced challenges, including a decline in comparable sales, which dropped 5.7% in the second quarter.

As they prepare to release its third-quarter earnings Wednesday (Dec. 4), Five Below officials are trying to improve from last quarter.

“Our second-quarter results fell short of what we know this business is capable of delivering,” Ken Bull, interim CEO, president and COO of Five Below, told investors. “Our response to the macro pressures of the last few years and the evolving consumer environment has required even greater execution, compelling and differentiated assortments and focus on the customer.”

Similarly, Dollar General is trying to shake off a subpar second quarter.

“We made important progress on our Back to Basics plan in the second quarter,” Dollar General CEO Todd Vasos said during the company’s second-quarter earnings call. “However, despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top-line results below our expectations for the quarter.”

Vasos added: “We know the importance of controlling what we can control. With the evolving retail and consumer landscape in mind, we are taking decisive action to further enhance our value and convenience offering, as well as the in-store experience for our associates and customers.”

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