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Competition Heating Up for Discount and Dollar Stores

Shira Petrack
February 28, 2022
Competition Heating Up for Discount and Dollar Stores

Dollar and discount stores gained momentum over the pandemic, and recent data indicates that these superstores are largely holding onto their strength. So while Walmart is still the undisputed leader of discount retail, the rise of alternative value retailers is beginning to impact the power dynamics in the sector. To better understand these shifts, we dove into foot traffic and consumer demographic data for the legacy discount retail giant as well as for Family Dollar, Dollar General, Five Below, Big Lots, and Dollar Tree.

Discount Superstores Strengthened by Pandemic

Dollar and discount stores thrived over the past two years. In the early days of the pandemic, mission driven shoppers and consumers affected by COVID’s economic impact came for the value pricing and the wide selection of product offerings that could be found in a single place. By the time the wider retail sector re-opened and the economic situation stabilized, consumers had already incorporated discount and dollar superstores into their regular shopping routines. 

Year-over-two-year (Yo2Y) visit numbers show that discount superstores now hold a significantly stronger position than they did pre-COVID. In December ‘21 alone, Family Dollar, Dollar General, Five Below, Big Lots, and Dollar Tree saw 20.4%, 28.2%, 34.1%, 3.0%, and 13.7% more visits, respectively, than they had received in December ‘19. 

Walmart’s Customers Increase their Cross-Shopping 

But the elephant in the value retail lane remains Walmart. Walmart saw a 0.3% Yo2Y visit increase – a good performance, especially in light of the Omicron wave, but not nearly as impressive as the double-digit visit growth at some of its competitors. And the data shows Walmart’s relatively low offline growth coupled with discount retailers’ massive visit jumps are somewhat correlated: Cross-shopping metrics indicates that at least some of the increased visits to discount superstores come from Walmart shoppers. 

Between 2018 and 2021, the share of Walmart shoppers who also visited another discount superstore increased across the board. For example, only 18.5% and 6.4% of Walmart shoppers visited Dollar General and Five Below, respectively, in Q4 2018. By Q4 2021, those numbers had jumped to 23.4% for cross-shopping to Dollar General and 10.5% for cross-shopping to Five Below. This seems to indicate that at least some of these discount retailers’ strength is coming at the expense of Walmart. 

And as the chart below shows, the increase in cross shopping began pre-pandemic – which means that the pandemic was not the sole driver of these brands’ success. While COVID may have given these chains a boost, Dollar General, Five Below, and others have been building their brands for years and expanding their retail locations, and are now reaping the fruits of that labor. 

Walmart and Discount Superstores Targeting the Same Audiences 

It might seem odd to compare Walmart to Family Dollar or Five Below, given how massive Walmart’s reach is compared to other discount superstores – but customer demographics data shows that the brands target the same types of customers. All the chains analyzed in this report cater primarily to lower-income shoppers. 

Whereas 45% of the the general population reported earning under $50,000/year in the period between December ‘20 and November ‘21, 59%, 54%, 52%, 50%, 48%, and 47%, of customers to Family Dollar, Dollar General, Walmart, Five Below, Big Lots, and Dollar Tree, respectively, reported earning under $50,000/year in the same period. High-income consumers are also underrepresented in these brands’ customer demographics compared to the national benchmark. 

It seems, then, that Walmart’s target audience overlaps significantly with the target audience of the growing discount brands. This can explain the increase in cross-shopping between Walmart customers and other discount retailers, and confirms that Walmart is no longer the only value-focused superstore in the market. 

Walmart Still the Visit Leader – But Its Visit Share is Slipping 

Analyzing each brands’ visit share in Q4 ‘21 shows that 69.4% of the overall visits for the six discount brands still went to Walmart. Critically, however, this is down from the 75.8% visit share Walmart enjoyed in Q1 2019. 

Walmart may still rule the discount superstore sector – but brands like Dollar General, Dollar Tree, and Five Below are solidifying their position. So while Walmart’s position as discount e-commerce leader remains secure, the offline discount superstore sector is getting increasingly crowded – and competition is heating up. A big element of this shift is the massive expansion plans for brands like Dollar General, while Walmart’s far larger fleet can hardly grow at the same rate. 

It is clear that while Walmart has less overall visits than it had before, its foot traffic lead is still massive. Yet, the rise in competition could impact decision making for Walmart moving forward. From an increased emphasis on pharmacy and health services to a great focus on innovation-driven channels like rapid fulfillment and delivery, Walmart is looking to expand its impact on a per-store basis while also spreading into newer areas. This may be enough to enable the brand to maintain its uniquely strong position – even in an increasingly competitive market.

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