The retail landscape has shifted dramatically over the last decade, with online shopping quickly becoming the go-to option for millions of consumers worldwide. Dollar stores, once known for their convenience and affordability, are now grappling with declining sales and increased competition from major players like Walmart and Target. As consumer behavior shifts, dollar stores must adapt to survive. In this blog post, we will explore why online shopping could be the way forward for dollar stores and how they can remain competitive in this changing market.
Dollar Stores’ Current Challenges
Declining Sales and Weaker Earnings
Dollar stores have been a staple in the American retail market, offering low-cost options for groceries, household goods, and other essentials. However, after a strong post-pandemic performance, many dollar store chains, such as Dollar General and Dollar Tree, are experiencing slower sales and weaker-than-expected earnings.
This decline is largely driven by their core customer base—low-income shoppers—cutting back on spending as inflation continues to rise. As consumers tighten their belts, dollar stores are feeling the pinch, especially in key areas like grocery sales. Additionally, competition from big-box retailers has further compounded the issue, as these larger stores offer more comprehensive online shopping and delivery services, making them more attractive to busy shoppers.
Competition from Big-Box Retailers
Big-box retailers like Walmart and Target have long dominated the retail industry, and they have quickly adapted to the growing demand for online shopping and delivery services. By offering same-day delivery, in-store pick-up, and a wider range of products, these retailers have positioned themselves as more convenient options than dollar stores.
Historically, dollar stores held the upper hand in convenience, especially in rural and low-income areas where larger stores were few and far between. But with big-box retailers entering the online space with force, that competitive advantage has eroded. For dollar stores to remain relevant, they must figure out how to compete not just on price, but also on convenience and customer experience—both online and offline.
Continued Expansion Despite Challenges
Planned Store Openings
Despite the headwinds, Dollar General and Dollar Tree have announced plans to open over 1,000 new stores in the upcoming fiscal year. This expansion signals confidence in their long-term strategy, even as they navigate short-term challenges. But does opening new stores solve the core issues of reduced spending and competition?
While expanding their physical presence can help solidify their brand in new markets, it may not address the larger trend of shoppers moving online. To future-proof their business, dollar stores will need to think beyond brick-and-mortar growth and focus on developing a robust e-commerce platform that caters to the modern consumer.
What Does Expansion Mean for the Future?
The strategy of opening new stores may have worked well in the past, but the retail landscape is rapidly evolving. As more consumers embrace the convenience of online shopping, the key question is whether dollar stores can keep pace with this shift. Simply opening more stores will not be enough to fend off competition from retailers that have mastered the art of omnichannel shopping. Dollar stores need to innovate, and fast.
Increased Dollar Stores Shopping Trends
Rising Popularity Amidst Inflation
Despite the challenges, dollar stores have seen an increase in foot traffic over the past two years, largely due to inflation. As prices for goods continue to rise, more Americans are turning to discount retailers to make their dollars stretch further. According to a CivicScience survey, 69% of U.S. adults reported shopping at dollar stores in 2024, up from 61% in 2022.
This trend is particularly pronounced in the grocery category, with 63% of households reporting that they purchase some or all of their groceries from dollar stores, compared to just 41% in 2023. As consumers grapple with higher prices, dollar stores are becoming a more attractive option for budget-conscious shoppers. But can this growth in foot traffic be sustained, especially as customers continue to cut back on spending?
Growth in Grocery Shopping
One of the biggest areas of growth for dollar stores has been in groceries. Post-pandemic shifts in consumer behavior have led to more shoppers buying their groceries at discount stores. This change is driven by the desire to save money as inflation affects everyday purchases. The rise from 41% to 63% in grocery shopping at dollar stores is a clear indication that consumers are looking for cheaper alternatives to traditional grocery stores.
However, the grocery segment is also where dollar stores are most vulnerable. With rising costs, consumers may find that even dollar stores are not immune to price increases. This could lead to a situation where dollar store customers, who rely heavily on affordability, begin cutting back further on their grocery purchases, opting for larger bulk purchases at big-box stores or cheaper online options.
Consumer Behavior: Cutting Back on Purchases
Spending Reductions Among Dollar Store Shoppers
While dollar stores are attracting more customers, many of those customers are reducing their overall spending due to rising prices. According to data from CivicScience, dollar store shoppers are cutting back on various categories, including groceries, household goods, streaming services, and food delivery, at a rate that outpaces non-dollar store shoppers.
This reduction in spending is particularly concerning for dollar stores, as they rely heavily on volume sales of low-cost items. When customers begin to cut back on essential purchases like groceries, it can have a significant impact on the store’s bottom line. For example, in Q3 of 2024, 39% of dollar store shoppers reported that they had reduced spending on groceries or planned to do so, compared to 35% of non-dollar store shoppers.
Impact on Dollar Stores
Groceries have long been a core offering for dollar stores, and any significant reduction in grocery sales could be detrimental to their overall performance. As shoppers tighten their belts, dollar stores may find themselves in a tough spot, especially if they do not offer competitive online options. This is where the need for innovation becomes crucial—if dollar stores want to retain their customer base, they must find ways to adapt to changing consumer habits.
Is Opening New Dollar Stores Enough?
Physical Stores vs. Online Shopping
The question remains: is opening more physical stores enough to drive long-term growth for dollar stores? Data suggests that while 43% of dollar store shoppers still do most of their shopping in-store, there is a growing shift toward online shopping. In fact, dollar store shoppers are seven percentage points more likely to shop online than non-dollar store shoppers, indicating that there is an opportunity for these retailers to expand their e-commerce offerings.
Online Shopping Trends Among Dollar Store Customers
Interestingly, the data also show that dollar store customers who shop online are more likely to live in cities, though suburban and rural shoppers are also embracing e-commerce. This presents a unique opportunity for dollar stores to broaden their reach by focusing on their online shopping experience.
However, there are demographic differences that dollar stores need to consider. In-store-only shoppers are slightly more likely to be lower-income than online shoppers, meaning that any online shift must still cater to their core demographic, ensuring that the pricing and convenience of online shopping remain attractive.
The Need for Stronger Online Presence
Why Dollar Stores Should Focus on E-Commerce
The rise of online shopping is no longer just a trend—it’s the future of retail. Dollar stores can no longer afford to ignore the digital space, especially as more consumers move their shopping habits online. By investing in an improved online shopping platform, dollar stores can offer the convenience and affordability that their customers seek while reaching a wider audience.
As reported by Forbes, retailers with strong e-commerce capabilities are far more likely to succeed in today’s market. By enhancing their online platforms, offering delivery services, and making online shopping seamless, dollar stores can compete more effectively with big-box retailers and Amazon.
What Dollar Stores Can Do
There are several steps dollar stores can take to strengthen their online presence:
- Develop a user-friendly website and mobile app that makes it easy for customers to browse and purchase items online.
- Offer delivery and in-store pick-up options to compete with larger retailers.
- Use data analytics to personalize offers and promotions, ensuring that customers receive targeted discounts based on their shopping habits.
- Partner with delivery services like Instacart to make online grocery shopping more convenient.
By implementing these strategies, dollar stores can build a competitive edge in the online space and future-proof their business for the years to come.
Conclusion
Adapting to changing consumer habits is essential for the survival of dollar stores in today’s retail environment. While more Americans are shopping at dollar stores due to inflation, many are cutting back on essential purchases, and the shift toward online shopping is undeniable. Opening more physical stores alone will not be enough to secure long-term success. Dollar stores must embrace e-commerce and invest in their online platforms to stay competitive.
Key Takeaways
- Dollar stores are facing declining sales despite an increase in shoppers.
- Rising costs are forcing customers to cut back on essential purchases like groceries.
- The growing trend of online shopping presents both a challenge and an opportunity for dollar stores.
- Simply opening more physical stores will not ensure future growth—dollar stores must focus on building a strong online presence.
- Enhancing e-commerce platforms and offering delivery options can help dollar stores remain competitive in a changing market.
For further reading on how e-commerce is transforming the retail industry, check out this McKinsey report on the future of retail.
This blog post provides a comprehensive analysis of the challenges and opportunities facing dollar stores, with actionable insights on how they can stay competitive in an increasingly digital world.
