Why Dollar General And Dollar Tree Are In The Bargain Bin While Walmart Thrives
5-8 minute read
Author: Tucker Massad
Published September 30, 2024
It’s 2024, and while Walmart is hosting an earnings party, Dollar General and Dollar Tree are getting a front-row seat to their own stock implosion. Walmart’s shares are up 15% this year, fueled by strong earnings and a rock-solid business strategy. Meanwhile, Dollar General’s stock has nosedived more than 30%, and Dollar Tree isn’t exactly popping champagne either. They’re all in the "value" retail business, so what gives?
It turns out, the story is in the details, the data, and a healthy dose of strategic planning (or lack thereof). Let’s peel back the layers of why Walmart is wiping the floor with its smaller discount competitors and what Dollar General and Dollar Tree need to do before they completely run out of steam.
#Walmart: A Well-Oiled Retail Machine
Let’s start with the obvious winner. Walmart, the king of low prices and massive scale, has been posting enviable numbers all year. In Q2 2024, Walmart reported:
24% growth in online sales
Primarily from grocery and general merchandise
6.5% growth in same-store sales,
Thanks to strong demand in food and household essentials
4% increase in operating income to $7.1 billion
Despite inflationary pressures and rising labor costs
Walmart’s bread-and-butter is its grocery division, which accounts for 60% of U.S. revenue. During times of high inflation, Walmart’s grocery aisles are where consumers flock, especially as competitors like Target and Amazon focus more on discretionary goods. Plus, Walmart’s e-commerce growth is the gift that keeps on giving. They’ve invested heavily in curbside pickup and online shopping, and it’s paying off—online grocery sales alone are expected to hit $100 billion by the end of 2024.
And that’s not all. Walmart has been automating its supply chain like it’s preparing for a retail revolution, using AI to manage inventory, streamline logistics, and cut operational costs. The result? A more efficient operation that puts downward pressure on prices without sacrificing margins.
#Dollar General & Dollar Tree: Stuck in Discount Purgatory
Now for the losers (so far): Dollar General and Dollar Tree. Once considered recession-proof, these discount stores are now seeing the downside of targeting only the most price-sensitive customers.
Dollar General’s Fall From Grace
Dollar General’s stock has plummeted 32% year-to-date.
The company’s Q2 2024 sales growth was a measly 1.6%, and its same-store sales fell 0.1%—a shocking stat for a discount retailer during a period of high inflation.
Operating margin dropped to 6.9%, down from 9.3% in 2023, thanks to higher labor, transportation, and inventory costs.
Dollar General’s core customers, lower-income households, are bearing the brunt of inflation, higher fuel prices, and the rollback of pandemic benefits. Many are now cutting back on even the most basic necessities—like food, hygiene products, and household goods—the very items Dollar General relies on for foot traffic. As a result, Dollar General has slashed its 2024 earnings outlook by nearly 40%, leaving investors wondering if this is the beginning of a long decline.
Dollar Tree’s Shrinking Profits
The company reported a 3.5% decline in same-store sales in Q2 2024.
Shrink, a fancy term for theft, is devouring profits. The CEO noted that shrink is "out of control" and has significantly eaten into the company's already-thin margins, which shrank to 4.9% from 6.2% just a year ago.
Dollar Tree’s overall sales were up just 2%, a disappointing figure given that inflation should have pushed more shoppers toward discount retailers.
Like Dollar General, Dollar Tree is struggling with its core demographic. With inflation still running high and discretionary spending tight, its lower-income customers are increasingly cash-strapped. This is a big problem for a company that relies on high volumes of low-margin products. Plus, the company has yet to figure out how to drive significant growth in its grocery or essentials segments, meaning it’s missing out on the key area where Walmart is cleaning up.
#Why Walmart Is Winning, and Dollar Stores Are Faltering
Customer Base Diversification
Walmart’s broad customer base is a key advantage. Walmart appeals to everyone, from budget-conscious middle-class shoppers to lower-income families. This is crucial during times of economic stress. When people are looking for cheap groceries, household items, and clothing all in one stop, Walmart becomes the go-to. It’s not just about price, it’s about convenience and scale.
In contrast, Dollar General and Dollar Tree are laser-focused on lower-income households, which are getting hammered by inflation, higher energy prices, and rising costs across the board. The math is simple: fewer discretionary dollars equals fewer trips to Dollar General and Dollar Tree.
E-commerce & Digital Growth
Walmart is a behemoth in e-commerce. Their online sales accounted for nearly $100 billion in 2024, with digital sales growing 24% year-over-year. Walmart is also the second-largest online retailer in the U.S., behind Amazon. Its massive investments in digital infrastructure, curbside pickup, and delivery options are paying off big time.
Dollar General and Dollar Tree? Let’s just say their e-commerce strategy leaves a lot to be desired. E-commerce sales at Dollar General are less than 5% of total revenue. Dollar Tree isn’t much better. This is a huge missed opportunity, especially since Walmart is showing that online grocery shopping is here to stay.
Supply Chain Superiority
Walmart’s supply chain might as well be a marvel of the retail world. The company has invested billions in optimizing its logistics network, including massive automation efforts across warehouses. As a result, Walmart can keep prices low while managing to maintain relatively healthy margins.
On the other hand, Dollar General and Dollar Tree are feeling the sting of rising costs. Dollar General’s transportation and labor expenses surged in 2024, contributing to a 1.6% decline in gross margin. Dollar Tree faces similar challenges, and both companies lack the scale to negotiate better terms with suppliers or streamline their operations like Walmart does.
#How Dollar General and Dollar Tree Can Stop Losing Their Shirts
If Dollar General and Dollar Tree want to avoid becoming relics of the retail world, they’ll need to make some serious changes. Here’s what could give them a fighting chance:
Embrace E-commerce, Finally
It’s 2024, and it’s about time Dollar General and Dollar Tree stopped treating e-commerce like a passing fad. A robust online platform is no longer optional; it’s essential. If they want to attract new customers, they need to create a seamless shopping experience, both online and in-store, with curbside pickup and delivery options.
Get Serious About Groceries
Walmart is crushing the grocery game, and there’s no reason why Dollar General and Dollar Tree can’t get in on the action. By expanding their grocery selections, particularly perishables, these stores can drive more consistent foot traffic. With inflation pinching wallets, shoppers will always prioritize groceries, so why not offer them more reasons to visit?
Stop the Shrink
Theft is killing Dollar Tree’s bottom line, and it’s not helping Dollar General either. Walmart is already using AI and advanced surveillance technologies to combat shrink, and it’s working. If the dollar stores don’t invest in similar technologies, they’ll keep hemorrhaging profits. Let’s put it this way: if your customers are stealing more than they’re buying, you’ve got a problem.
Broaden The Customer Base
It’s time for Dollar General and Dollar Tree to stop being so exclusive to the low-income crowd. While it’s important to cater to their core demographic, expanding their product offerings to include some higher-margin items that appeal to middle-income shoppers could help them weather economic downturns. More diversity in their product lines might also entice a broader range of customers.
#The Future: Will Dollar Stores Bounce Back?
Right now, it looks like Walmart is set to dominate the value retail sector for the foreseeable future. Its combination of low prices, e-commerce convenience, and grocery domination is tough to beat. Dollar General and Dollar Tree have a long way to go if they want to catch up, and without significant investments in technology and supply chain efficiency, they risk being left in the dust.
That said, if these companies make the right moves—particularly in expanding their grocery offerings, investing in e-commerce, and tackling shrink—they could stabilize and perhaps even grow in the future. But for now, it’s clear that Walmart is playing 4D chess while Dollar General and Dollar Tree are stuck playing Monopoly with half the board missing.
Walmart’s not just surviving, it’s thriving. And unless Dollar General and Dollar Tree start adapting to the new retail landscape, they’ll be left behind, wondering where it all went wrong.