Dollar stores are facing challenges in the modern U.S. economy.
Dollar stores companies were some best performing stocks in the S&P 500 during the Great Recession, said Piper Sandler managing director Peter Keith. But over the past couple of years, dollar stores have not seen the same success.
Shares of Dollar Tree — which owns its namesake brand and Family Dollar — and Dollar General have both fallen roughly 50% this year.
The companies are dealing with a complex mix of both economic and self-inflicted problems.
Lower income Americans, who comprise about 60% of Dollar General sales, are under more pressure to stretch their dollars in the face of high inflation. These shoppers are therefore looking for more consumables — like foods and household items – rather than discretionary items, which are typically more profitable.
Middle-income and upper middle-income Americans are also not being forced to trade down to dollar stores as the job market has stayed relatively strong in 2024.
In its fiscal 2024 second quarter earnings call, Dollar General said those customers are also more reliant on online storefronts, which dollar stores have had less success in rolling out.
“A lot of legacy brick-and-mortar companies, like a Walmart or Home Depot or Best Buy, I like to say they made about five years of e-commerce and digital investments in about 12 to 18 months during Covid, so the digital capabilities of a lot of companies have also gotten a lot better in recent years,” said Keith.
Shares of Walmart are up more than 60% year to date as the retail giant gains more share of U.S. wallets.
Both Dollar Tree and Dollar General have also faced numerous worker safety violations over the past decade.
Watch the video to learn more about why dollar stores are struggling right now.
-CNBC retail reporter Melissa Repko contributed to this story