Dollar General is attracting new customers as inflation-weary shoppers look for bargains. Many of the discount chain’s core customers check out with fewer items in their baskets.
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After more than two years of spending more on stuff, Americans are becoming more cautious about how they spend their money and forcing retailers to offer more discounts.
Target and Walmart are lowering grocery prices, and McDonald’s is introducing $5 meals.
Stores like Dollar General that specialize in discount merchandise are attracting more cost-conscious customers.
“This is a cautious shopper,” Chief Executive Todd Vasos said of the typical Dollar General shopper. “She’s definitely weighing in on stores and on shelves.”
Dollar General reported better-than-expected profits Thursday when it reported its latest quarterly results. The discount chain said it is attracting more middle- and upper-income shoppers looking for bargains. But lower-income shoppers at Dollar General tend to check out with fewer items in their baskets.
Financial stress is real
Wider data shows people are feeling the pinch. According to the Federal Reserve’s latest “Beige Book,” which collects anecdotal information from businesses across the country, retailers say customers are resisting further price increases.
Walmart said it cut prices on nearly 7,000 items, while Target cut prices on 1,500 items and plans to cut prices on an additional 3,500 items throughout the summer.
The newfound caution among consumers marks a change from last year, when strong spending kept the economy growing rapidly even as people told pollsters they were pessimistic about the outlook. Revised data released this week showed the economy grew at an annual rate of just 1.3% in the first three months of the year, instead of the 1.6% originally reported. The downward revision was mainly due to lower consumer spending.
A report released by the U.S. Commerce Department on Friday showed that the economy continued to slow down in April, with consumer spending on goods falling 0.2% during the month.
Increase in service spending
However, people continue to spend more on services – such as haircuts and tickets to sporting events. Spending on services grew rapidly in the first three months of the year and continued to expand in April, but at a slower pace.
While prices for many goods have begun to fall, rising prices for services have kept inflation high.
According to the Commerce Department’s inflation gauge, which the Federal Reserve closely monitors, consumer prices increased at an annual rate of 2.7% in April. Although it is down from last year, it is still well above the Federal Reserve’s 2% inflation target.
“As long as demand from the services sector remains strong, it will be difficult for the Fed to deliver the expected rate cuts,” said Tim Quinlan, an economist at Wells Fargo.
The central bank said it wanted to ensure prices were under control before starting to cut interest rates. Rates are expected to remain stable through the summer, while investors see a slight better than 50% chance of a rate cut in September.
income exceeds expenses
Personal income grew slightly faster than spending in April — a welcome turn after spending outpaced income growth in six of the previous seven months.
When spending grows faster than income, shoppers are forced to withdraw savings or use credit cards to make up the difference. Credit card balances rose to $1.11 trillion in the first quarter of this year, and nearly one-fifth of cardholders are at or near their credit limit.
“I know this is the default setting for economists to cheer and support strong consumer spending, but sometimes I feel like it might be in people’s best interest to tweak it a little bit,” Quinlan said.
