Discounters take the spotlight as shoppers seek value

The insight: Discounters are experiencing a resurgence as concerns about rising prices and economic stability spur shoppers of all income levels to seek out bargain retailers.

The data: Visits to discounters surged by 8.5% YoY in April, reversing two months of declines, per Placer.ai data. Year-to-date, discount and dollar store visits are up 3% YoY—outperforming other nondiscretionary sectors.

Shoppers are not only visiting more, but they’re also spending more per trip.

• Dollar Tree reported a 5.4% YoY jump in same-store sales in Q1, which it attributed to a 2.5% increase in traffic and a 2.8% increase in average ticket size.
• Dollar General’s 2.4% same-store sales growth was driven entirely by higher transaction amounts, which helped offset a slight decline in traffic.
• Five Below’s Q1 same-store sales climbed 7.1%, thanks to a 6.2% rise in transactions and a 0.9% increase in average ticket size.

Behind the numbers: Both Dollar General and Dollar Tree noted an influx of higher-income consumers in the quarter—which is good news since those shoppers have more money to spend on discretionary, higher-margin goods. But it’s a worrying sign for the broader economy.

• Dollar General saw the “highest percent of trade-in customers we’ve had in the last four years” in Q1, CEO Todd Vasos said, with those shoppers making more visits and spending more than previous waves of new customers.
• Sales from Dollar Tree’s higher-income customers are growing faster than any other cohort, CEO Michael Creedon noted. That includes “a meaningful traffic increase” from shoppers with household incomes over $100,000.
• Those shoppers helped both companies gain dollar and unit share in Q1 in consumable as well as discretionary categories.

Consumers under strain: While higher-income consumers appreciate the value that Dollar Tree and its competitors offer, these retailers remain indispensable for lower-income households, which are under extreme financial pressure from years of elevated inflation and effects of the Trump administration’s policies.

• 1 in 4 Dollar General consumers report having less income than the year before, while nearly 60% of its core audience expects to sacrifice necessities in the coming year, according to the retailer’s internal surveys.
• Those pressures will intensify should President Donald Trump’s tax bill pass—positioning discounters to snap up more market share, particularly in consumables and other household necessities.

Our take: The uncertain environment in many ways benefits Dollar General, Dollar Tree, and Five Below, whose value initiatives are enabling them to win spending from cautious consumers. But—as with the broader retail industry—tariffs are a costly challenge for all three, particularly as they try to minimize price hikes and maintain their value advantage.