Discount Retailers See Sales Upticks as Paycheck-to-Paycheck Shoppers Trade Down
As inflation continues to erode purchasing power, financially unstable consumers, squeezed by higher prices on everything from groceries to gasoline, are increasingly turning to discount and value-focused retailers. This trade-down behavior is providing a boost to companies such as Dollar General, Dollar Tree and The TJX Companies, which are seeing upticks in customer traffic and […]
The post Discount Retailers See Sales Upticks as Paycheck-to-Paycheck Shoppers Trade Down appeared first on PYMNTS.com.
As inflation continues to erode purchasing power, financially unstable consumers, squeezed by higher prices on everything from groceries to gasoline, are increasingly turning to discount and value-focused retailers.
This trade-down behavior is providing a boost to companies such as Dollar General, Dollar Tree and The TJX Companies, which are seeing upticks in customer traffic and sales at a time when many retailers are seeing sales declines due to shoppers’ belt-tightening behaviors.
Most U.S. consumers have no financial safety net to fall back on, per the March edition of the PYMNTS Intelligence New Reality Check: The Paycheck-to-Paycheck Report series. The study’s survey of more than 4,200 U.S. consumers revealed that 59% live paycheck to paycheck. That share jumps to 64% for Generation Z and 66% for millennials.
Against this backdrop of financial instability, more budget-friendly retailers are making gains. The TJX companies noted in its first-quarter fiscal 2024 earnings results that net sales rose 6% year over year. Ross Stores shared in its Q1 fiscal 2024 earnings that it saw sales increase 8% year over year. Dollar General saw net sales grow 6.1% in Q1, and Dollar Tree reported a Q1 consolidated net sales uptick of 4.2%.
“[W]hat we’re seeing from the consumer overall is … it’s a cautious consumer,” Dollar General CEO Todd Vasos said on an earnings call with analysts. … [W]hat we’re seeing is that the next cohort and the one above that — so, let’s call it middle- to upper-middle-income and then in some of the upper-income stratas — we’re seeing the trade-down still come in.”
“Our core consumer is still continuing to figure out her overall spending rates,” he added.
Financially strained consumers across income brackets are trading down to less expensive retailers, per research from the February/March installment of the New Reality Check series, “Why One-Third of High Earners Live Paycheck to Paycheck.” As of January, the survey of more than 4,200 U.S. consumers found that 55% of shoppers earning less than $50,000 annually and 57% of those earning $50,000-$100,000 switched to cheaper merchants in the previous year due to price increases of retail products. Even higher-earning shoppers are making such sacrifices, with 45% of those who earn more than $100,000 a year doing the same.
One notable exception to this trend of discount retailers benefitting from shoppers’ trade-down is Big Lots. It seems that when it comes to larger-ticket items, just shifting to a less expensive merchant is not enough for today’s budget-strapped shoppers. Consumers facing financial difficulties are holding off on these purchases altogether when they can.
“We missed our sales goal due largely to continued pullback and consumer spending by our core customers, particularly in high-ticket discretionary items,” Big Lots President and CEO Bruce Thorn told analysts on the company’s earnings call Thursday (June 6). “The consumer environment softened in the first quarter, as both consumer confidence and sentiment declined due to concerns about inflation, unemployment and interest rates.”
To that point, the “Why One-Third of High Earners Live Paycheck to Paycheck” study found that 60% of consumers are cutting back on nonessential retail purchases due to price increases.
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The post Discount Retailers See Sales Upticks as Paycheck-to-Paycheck Shoppers Trade Down appeared first on PYMNTS.com.