Professor John Strong Discusses Struggles Facing Dollar Stores in CNBC Interview and Marketplace® Podcast
Professor John Strong, CSX Professor of Finance and Economics and a retail expert at the Raymond A. Mason School of Business at William & Mary, recently offered his analysis on the challenges facing major dollar store chains like Dollar General, Dollar Tree, and Family Dollar. In a CNBC interview featured in a November 2024 video segment, "Why Dollar Stores Are Struggling," Strong provided insights into why these once-recession-proof chains now face significant financial difficulties.
Dollar stores, which once thrived during the Great Recession and outpaced broader market growth, have seen their stocks drop in recent years. Strong explained that inflation has hit their core customers—the lower-income households that rely on these stores for affordable essentials. However, with rising costs, these consumers are increasingly focusing on necessities like food, which have lower profit margins for the stores.
"Their core customer is getting more selective," Strong noted. "And when people's budgets tighten, they're less likely to spend on discretionary items, which are often more profitable for these stores."
Strong and other experts highlighted operational issues contributing to dollar store struggles, from cluttered aisles and understaffed locations to outdated store conditions. Strong also discussed the challenges at Family Dollar, which has been a burden for its parent company, Dollar Tree, since its acquisition in 2015. "The challenge with Family Dollar is that it was always the weakest of the dollar stores. It was never as profitable, it never grew as much, and because the management knew it would be sold, they stopped investing in many things," Strong noted. "That lack of investment has left Family Dollar with outdated technology and store conditions that have made it hard to compete."
In addition to economic and operational challenges, dollar stores face rising competition from larger retailers like Walmart, which has made strides in attracting lower- and middle-income consumers. Strong emphasized that Walmart has taken particular time to learn from the pain points of dollar stores and has integrated e-commerce. Its ability to expand its discount offerings has put additional pressure on the dollar store model.
"Today, Walmart is gaining share from the same customer base that dollar stores have traditionally targeted," Strong explained. "They're offering lower prices and a better shopping experience."
Professor Strong also appeared on American Public Media’s™ Marketplace® podcast in an episode titled "Why Dollar Stores Aren't Doing as Well as You Might Expect," which aired on September 14, 2024. In the podcast, he further explored the dynamics shaping the retail landscape, focusing on inflation's impact on consumer behavior and the need for dollar stores to adapt to the changing market.
As dollar stores grapple with these challenges, Strong believes that addressing operational inefficiencies and evolving consumer preferences will be critical to their recovery. "To stay relevant, dollar stores will need to enhance the shopping experience and better integrate e-commerce into their models," he said.
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