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Dollar stores are experiencing a rough patch. Rising competition from Walmart Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) is undermining their market dominance and threatening their financial outlook.
Walmart, in particular, has been successful in drawing away customers from dollar chains by appealing to higher-income consumers, CNN reports.
Dollar Tree, Inc. (NASDAQ:DLTR) shares tumbled 20% on Wednesday after the company revised its annual outlook downward, attributing the cut to significant pressure on its low- and middle-income customers.
This slump follows Dollar General Corporation (NYSE:DG) reducing its full-year forecast, with shares hitting their worst day on record last week.
Also Read: Dollar General Q2 Earnings: Earnings Miss, Slashed Outlook And Shrinking Margins
The dollar store sector is struggling as Walmart and Target aggressively lower prices to attract inflation-weary shoppers, impacting foot traffic to dollar stores.
Dollar General CEO Todd Vasos acknowledged that Walmart’s strong performance in attracting budget-conscious shoppers has contributed to the struggles of dollar stores.
“While we believe the softer sales trends are partially attributable to a core customer who feels financially constrained, we know the importance of controlling what we can control,” the CEO said in a press release last week.
Despite historical trends where dollar stores benefited from middle-income households trading down during financial stress, this shift has not occurred recently.
Instead, more affluent customers have increased their spending at Walmart and Target, further affecting dollar store sales.
David D’Arezzo, a former executive at Dollar General, pointed out the close competition between Dollar General and Walmart, noting that when Walmart performs well, dollar stores tend to face more challenges.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo via Shutterstock
