Dollar Tree makes an upscale play to fuel sales

Discount retailer Dollar Tree is opening new stores in increasingly affluent areas as it seeks to attract higher-income customers who spend more at the store per trip, a new report finds.

An analysis by Bloomberg News found that 49% of new Dollar Tree stores opened in the last six years were located in wealthier parts of metro areas around the country, up from just 41% in the preceding six years.

The share of new stores in ZIP codes with significantly higher incomes compared to the broader metro area rose to 19% in the last six years, up from 16% in the prior six years. At the other end of the spectrum, the share opened in ZIP codes with significantly lower incomes declined to 14% from 20% in the comparable periods, Bloomberg found.

Dollar stores have historically seen an uptick in business during economic downturns as more consumers look to economize, but with higher-income households driving much of consumer spending, the shift comes as a way of attracting those shoppers more frequently.

WHY SHOPPERS MAKING SIX FIGURES ARE GIVING DOLLAR TREE A BOOST

Dollar Tree says that in the last quarter, 60% of new Dollar Tree customers made at least six figures. About 30% were middle-income households earning between $60,000 and $100,000, while the rest were lower-income households earning under $60,000.

While these higher-income customers visit Dollar Tree less than their lower-income peers, the company said that they spend an extra $1 on average per visit and if they were to make one additional visit per year, it would boost annual sales by $1 billion.

INFLATION EASED SLIGHTLY IN JANUARY BUT REMAINED WELL ABOVE THE FED’S TARGET

Dollar Tree CEO Michael Creedon said late last year that the retailer serves “an increasingly broad spectrum of shoppers, from core value-focused households to middle- and higher-income shoppers who are making deliberate choices about how and where they spend.”

He added that the data “demonstrates that Dollar Tree isn’t just for tough times or for those with limited resources.”

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“While the average per household spend for our higher income customers is currently lower, even given their higher income, larger average basket size and ability to spend more, this is a simple function of trip frequency,” Creedon said.

He added that “because many of our higher income customers are still early in their relationship with Dollar Tree, their purchase frequency has significant room to grow.” 

Consumers’ shopping preferences have also contributed to the pivot, as more households trade down to offset higher expenses due to inflation.

The elevated cost of essentials like groceries and household items has forced even more of them to trade down to stores known for their heavy discounting or everyday low-price models, such as Dollar Tree, Dollar General, Walmart and Aldi.