Consumers focused on consumables at Dollar General and Dollar Tree

Dollar General issued a press release today, August 31, 2023, which had 19,488 stores as of August 4, 2023.

"Same-store sales in the second quarter of 2023 included declines in each of the home, seasonal, and apparel categories, partially offset by growth in the consumables category."

"This gross profit rate decrease was primarily attributable to lower inventory markups and increased shrink, markdowns, and inventory damages, as well as a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories. These factors were partially offset by a lower LIFO provision and decreased transportation costs."

In the first, we see that the US consumer, typically those at the lower end of the income curve, were shifting their expenditures to consumables like food.

In the second, we see that Dollar General had to lower their prices, and suffered from destruction and theft of their inventory. This is on a growing inventory base (up 3.4% on a comparable store basis over the past 12 months).

We heard similar news from Dollar Tree on August 24, 2023 who have 16,476 stores as of July 29, 2023.

"Dollar Tree same-store sales increased 7.8%, driven by a 9.6% increase in traffic, partially offset by a 1.6% decline in average ticket. Family Dollar’s 5.8% same-store sales increase was comprised of a 3.4% increase in traffic along with a 2.3% increase in average ticket."

"The gross margin decline was driven by lower initial mark-on, unfavorable sales mix, elevated shrink, and wage investments in distribution center payroll, partially offset by lower freight costs."

The first point confirms that the consumer was more focused on consumables, which make up a larger portion of Family Dollar sales than for Dollar Tree.

The second point confirms that the sales mix is changing to lower margin items and there is an increase in inventory shrink. Dollar Tree did manage to lower its inventory levels, but is 'paying' for that efficiency with greater investments in logistics labor.

In conclusion, the lower income consumer is shifting their spend to consumables, and helping to shrink inventory levels at the 'value' stores designed to serve them.