Dollar stores have lost their safe haven status

With the job market sending some concerning signals and consumers still bemoaning high prices, there’s one niche of the stock market that’s doing surprisingly bad: Dollar stores.

One would expect these stores, whose names are synonymous with value and thrift, to do better than most retailers during times when the economy is coming under some pressure.

At key points in the past few decades when nominal US economic growth has been decelerating sharply — like during the global financial crisis, in the aftermath of the US shale bust in mid-2015, after growth peaked in the pre-pandemic cycle in the middle of 2018, or the 2022 bear market for the S&P 500 — dollar stores have outperformed, as has their sector, consumer staples.

As Dollar General CEO Todd Vasos put it back in 2020, “we do very good in good times, and we do fabulous in bad times.” 

But that hasn’t been the case this year: Dollar Tree is down 53% in 2024 heading into Monday’s session, while Dollar General is off nearly 40%. Meanwhile, the S&P Retail Select Industry Index, an equally weighted basket of major US retailers, is marginally positive year to date.

This appears to be a dollar store issue, not one for the sector at large: Consumer staples is trouncing the equal-weight retail group this year.

Dollar Tree saw 0.5% decrease in average tickets despite a slight same-store sales gain, meaning that there were more shoppers but they were spending less, sending stocks to the company’s lowest level since 2015. Dollar General, meanwhile, recently reported that low-income consumers were pulling back their spending on necessities.

One possible reason is that despite their namesakes, dollar stores are not offering that many value goods anymore, as competitive pressures rise. Walmart, for example, has increased their convenience offerings and attracted more shoppers who were looking for lower prices in the latest quarter, while lower prices have also paid off for Target.