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A funny thing about discount stores is that their performance as a business can spell trouble for the economy.
Under financial pressure, budget-conscious consumers tend to trade down, replacing their brand-name staples with private-label goods or changing their shopping routines entirely, skipping the department store to go bargain hunting.
A good quarter for Walmart can mean tough going for working households.
Though it’s more obvious with luxury brands and in travel and hospitality, there’s another, opposite element at play for retailers: going after the rich.
Catering to high-income earners boosts revenue, juices profits, and elevates the brand. Two things can be true at once: More Americans are trading down, and more retailers are exploiting the disposable incomes of households that don’t strictly need a bargain. That old K-shape.
Dollar Tree (DLTR) is a notable player here.
During the company’s most recent quarter, 3 million additional households visited its stores compared to the year prior. And 60% of those new customers made at least $100,000.
“We serve 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,” said CEO Michael Creedon Jr. during the company’s last earnings call.
As Bloomberg reports, more than a quarter of the Dollar Tree stores that opened last year were in ZIP codes where the median household income was at least six figures.
The expansion into wealthier neighborhoods highlights Dollar Tree’s consumer ambitions and offers another sign of an economy reorienting spending around wealthier people.
Walmart, which now touts a market cap more familiar to sprawling tech companies, has succeeded with the same playbook. A focus on its online marketplace, a membership program to rival Amazon Prime, and selling furniture and electronics have all pulled in higher-income earners.
For years, Dollar Tree has defied its name, upping the base price of its products to $1.25. But just as importantly, it has increasingly carried items well above that amount. Last year, the store sold stuff that went for as much $7, with all sorts of prices in between.
The math adds up. Steering occasional shoppers with higher incomes into the store just one more time per year, the report noted, would result in an additional $1 billion in annual sales.