Dollar General (DG) , which has almost 20,000 locations nationwide, is starting to feel the impact of an unexpected shift in customer behavior, and its CEO is flagging the source of the problem.
In Dollar General’s 2024 fourth-quarter earnings report, the company revealed that its same-store sales increased by 1.2% year-over-year during the holiday season, while the average amount of money customers spent per purchase spiked by 2.3%.
However, Dollar General saw customer traffic in its stores dip by about 1% year-over-year. Its operating profit shrunk by roughly 49%, which the retailer claims was partially due to store closures.
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Dollar General CEO raises red flag about shopper behavior
During the company’s March 13 earnings call, Dollar General CEO Todd Vasos said that the company has noticed that the financial situation of its customers has “worsened.”
“Our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing inflation,” said Vasos. “Many of our customers report that (they) only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.“
This is very surprising since Dollar General mostly sells essential items that are usually priced between $1 and a little over $10.
A woman shops in the fresh and frozen food aisle of a Dollar General Corp. store in Saddle Brook, N.J., on Dec. 3, 2011.
During the call, Vasos also acknowledged that tariffs may impact future customer behavior. Tariffs are taxes companies pay to import goods from overseas, and the extra cost is often passed on to consumers in the form of price hikes.
On March 4, President Donald Trump increased his previous 10% tariff on all goods imported from China to 20%. He also imposed 25% tariffs on all goods imported from Mexico and Canada.
Vasos said that tariffs will affect a number of products Dollar General sells. Still, he believes that the company is “well positioned” to mitigate that impact. He said that the company previously battled tariffs in 2018 and 2019, but, at that time, it was forced to increase prices on some products.
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“Given the already stressed financial condition of our core customer, we are closely monitoring these (tariffs) and any other potential economic headwinds, including any changes to government entitlement programs,” said Vasos.
He also said that he doesn’t expect the current situation to dramatically improve anytime soon.
“As we enter 2025, we are not anticipating improvement in the macroenvironment, particularly for our core customer,” said Vasos. “In turn, we know our customers expect value and convenience more than ever.”
Dollar General announces bittersweet changes
As Dollar General sees a weakening in consumer demand, it will be closing 96 underperforming stores.
“While this is less than 1% of our overall store base, those stores, many of which are in urban locations, have become increasingly challenging to successfully operate,” said Vasos.
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In addition, it is also closing 45 of its PopShelf locations after it reviewed the financial and operational conditions of these stores.
Despite facing lower sales and announcing store closures, Dollar General is hoping to attract more customers by expanding delivery to thousands of its stores, which its main competitors such as Walmart and Target have also recently heavily invested in.
“Expanding our delivery up to 400 stores and then aiming to move to 10,000 by the end of the year is and should be a competitive advantage,” said Vasos. “The reason being is that there is no one out there today that can deliver to small town rural America within an hour. We can do that. And that’s what we aim to do with our delivery initiative.”
The company will also be focused on its new “Back to Basics” initiative. This includes reducing retail theft, adding more associates at checkout areas in stores, addressing supply chain constraints and increasing the amount of promotions customers can take advantage of to save money in stores.
Dollar General shares were off about 1% on Friday at $79.02. The shares are up 4.2% this year, despite the ongoing market turmoil.
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