Advertisement

Dollar Stores Play Catch-Up With Walmart On Pricing, But Need To Do More

Share on linkedin
Share on twitter
Share on facebook
Share on reddit
Share on email

In the battle for low prices, it appears the biggest competition for discount stores Dollar Tree and Dollar General is not each other, it’s Walmart.

The Q2 comparable store sales increases at Dollar Tree and Dollar General both were lower than Walmart’s 1.6% rise, which marked the retail giant’s biggest comparable sales increase in four years.In the case of Dollar General, the retailer has actively acknowledged that it needs to up its discount game, with CEO Todd Vasos revealing in an earnings call that the company reduced prices an average of 10% on 450 of its best-selling products across 2,200 stores. While Vasos indicated that the pricing move was proactive, Walmart already has made numerous moves into discount pricing, such as instituting lower prices for food offerings and acquiring Jet.com, which is powered by dynamic pricing software.

But will these retailers beat Walmart on price competition alone? Not according to some industry experts. “To compete in an omnichannel marketplace, Dollar General needs to differentiate on more than lowest price,” said Chris Petersen, President of Integrated Marketing Solutions in a RetailWire discussion. “One major Dollar General asset is more stores located in neighborhoods and along traffic routes. For busy working parents, convenient availability is as important as price.”

Advertisement

Dollar General increased Q2 net sales 5.8% while boosting comparable store sales 0.7%, but that improvement is miniscule compared to the 2.8% it reeled in from these stores last year. Similarly, Dollar Tree improved comparable store sales 1.2%, representing less than half of the 2.7% increase in Q2 2015. Considering the company’s net revenue increased a whopping 65.9% in large part due to its acquisition of rival Family Dollar, Dollar Tree had to have hoped that its investment would pay off big time within its new stores.

“Dollar Tree is delivering on strong integration synergies and appears to be executing well,” wrote John Zolidis, ‎Director of Equity Research, Retail & Restaurant, at Buckingham Research in a note to Barron’s. “However, top-line weakness is a concern and like Dollar General, we are somewhat at a loss to explain why things appeared to get so much harder in Q2 vs. Q1. This is happening across many different kinds of consumer companies despite rising employment and wages, which is normally the best indicator of consumer spending. We continue to believe the consumer will bounce back after the summer lull, although perhaps not until after the election-related uncertainty goes away.”

Dollar General upped the ante earlier this year when it announced it would add 1,900 store locations in 2016 and 2017. In July 2016, the retailer bought 41 of Walmart’s former Express locations, showing that the company isn’t afraid to enter territory where Walmart has been unable to succeed.

Although Dollar Stores Fail To Impress, Off-Price Continues Success

The underwhelming results of the major dollar stores is in direct contrast to the recent success of off-price retailers. Consumers want to buy quality goods at cheap prices, making brands such as TJX and Burlington Coat Factory more popular spots for apparel.

TJX saw a Q2 net revenue increase of 7%, comparable sales bumped up 4% and net income bumped up 5% to $562 million. Burlington Stores increased net sales almost 10% and same store sales more than 5%, with an 87% net income boost to $20 million.

If anything, the popularity of these brands is a sign that differentiation in low-price apparel may mean a lot more to consumers than cheap stationery or party supplies.

Advertisement

Advertisement

Access The Media Kit

Interests:

Access Our Editorial Calendar




If you are downloading this on behalf of a client, please provide the company name and website information below: