On June 1, 1955, in Springfield, Ky., J.L. Turner and his son Cal Turner came up with a simple concept for a retail store: No item could cost more than $1. Their store, Dollar General, spread to other locations, and the idea of a Dollar Store was born.
It was a seemingly revolutionary idea, and dozens of other dollar stores sprouted across the U.S., including via new chains Dollar Tree and Family Dollar. The stores’ low prices shaped the retail market for the working and middle class and became a place to find some economic relief during hard times.
But things look a little different in the 21st century — and so do the prices. In 2021, Dollar Tree upped its base price to $1.25 and capped its prices at a maximum of $7, essentially defeating the purpose of the dollar store concept.
To add fuel to the fire, years of mismanagement and financial struggles caused Family Dollar, owned by Dollar Tree, to close nearly 1,000 stores last year. Plus, 99 Cents Only was forced into Chapter 11 bankruptcy in April and liquidated all of its stores soon after.
The dollar stores themselves have blamed their drop in profits on inflation and shoplifting.
“The bulk of [dollar stores’] sales are coming from households that make less than $30,000 a year,” Noah Rohr, an equity analyst for Morningstar, told Commercial Observer. “Those are particularly consumers that have been hit pretty hard by inflation. That broadly has kind of taken a toll on the low-income consumer, which is who they’re really serving.”
But, dollar stores’ struggles also come down to a change in consumer behavior as more people turn to online marketplaces like Temu for low-price goods, even as those apps confront potential challenges from new tariffs imposed under the Trump administration (and a reputation now for mining users’ data).
“When their budgets are extremely tight, [consumers] are going to be looking for the lowest-priced alternative,” Scott Hoyt, senior director at Moody’s Analytics, said. “And, clearly, those types of online retailers are a potential source of getting very low-priced goods.”
Hoyt added that conditions in credit markets are becoming “more difficult” for the low-income consumer to get access to credit as “delinquencies are rising and lending standards are being tightened.”
And there’s been a lot more stress in the consumer credit industry as credit card balances and the volume of past-due payments rise, said Brett House, a professor in Columbia Business School’s economics division.
Cuts to government benefits — such as the potential $230 billion cut to the Supplemental Nutrition Assistance Program (SNAP) — could also affect low-income households and their scramble to find bargains, especially as dollar stores keep raising prices and putting many goods out of reach for some.
Then there’s the inventory-related issues. During the COVID-19 pandemic, Dollar General had “quite robust demand around 2020” and then “got a bit overzealous with their inventory ordering to the point in which they became overstocked in 2023,” forcing them to more aggressively spend to promote items to reduce inventory, Rohr said.
As for Dollar Tree, it’s in the process of rolling out a multi-price product assortment, meaning it will need temporary labor for even simple tasks like updating the price tags at its stores, Rohr added.
And, after adding more than 300 items to its inventory last year, Dollar Tree had to up its $1.25 base price even higher to $1.50, according to AARP.
Many dollar store executives have also blamed their store closures on an increase in shoplifting across the U.S., especially in cities.
“It may be the specific geographies [these stores] are located in that are hurting their bottom line,” House said. “They could be in communities that are seeing disproportionate stress right now economically, and are not benefiting from some of the broader growth that we continue to see in the U.S. economy.”
The number of shoplifting incidents in the U.S. increased 93 percent from 2019 through 2024, according to data from the National Retail Federation.
And in the three largest U.S. cities — New York City, Los Angeles and Chicago — shoplifting rates in 2024 remained higher than they were before the pandemic, the Council on Criminal Justice (CCJ) said in a November report.
In New York City specifically, shoplifting was 55 percent higher in 2023 than in 2019, the CCJ found. Plus, from January 2024 to September 2024, the city’s shoplifting rate was 3 percent higher than during the same period in 2023.
As a result of the increase in shoplifting incidents across the country, Dollar General CEO Todd Vasos said last year he would remove self-checkout stations entirely at 300 of the chain’s stores most impacted by shoplifting, CBS News reported.
Dollar stores aren’t alone in taking measures to limit shoplifting. Drugstore chains like Walgreens, CVS and Duane Reade have locked up their products to prevent further theft, but House said there’s a “knock-on effect from those security measures that also pushes people online, because it makes the in-person retail experience so unpleasant.”
Online retailers like Amazon have been a growing threat to brick-and-mortar retail for over a decade, and “that’s clearly not going to change,” Hoyt said.
“The market will migrate to convenience, and Amazon is way more convenient,” added Kate Newlin, a retail brand consultant and president of Kate Newlin Consulting. “And then, you know, second is the big-box stores.”
There’s no doubt dollar stores face competition from bigger discount chains like Walmart, Target and Costco, but experts said the rivalry actually creates an opportunity for dollar stores to try to appeal to middle-income consumers who “might be interested in trading down,” Hoyt said.
While Walmart and Costco generally offer better per-unit prices, dollar stores have the edge in legitimate value proposition in that customers are looking to spend a minimal amount of money in “absolute dollars,” Rohr said.
On average, a shopping basket at Walmart will be significantly more expensive than one at Dollar Tree, as Walmart sells a wider variety of products, usually in bulk. But for customers looking to pick up only a few items and not a three-pound tub of pretzels, dollar stores can’t be overlooked for their convenience and affordability.
Dollar stores also have a particular novelty that can’t be replicated in other shopping experiences, Newlin said. “There was an edge to it — that you were going to find things there that you couldn’t find in other places, and they’d be thrillingly inexpensive,” Newlin said. “You’d have that sense of, ‘Look how lucky I am, I found this’ adventure of it.”
But the real question is whether dollar stores can present a “compelling argument” to shoppers about their value and sense of adventure to keep customers coming through the doors as more and more competitors vie for their dollars, Hoyt said.
“They have to compete against the people in their area, and they also have to look for opportunities to present a compelling case for higher-end consumers that might be looking to trade down because they’re struggling financially as well,” Hoyt said. “It really comes down to being the best at what they do and attracting customers.”
And they seem to be doing that as they had a bit of good news at the end of 2024, which saw visits to discount and dollar stores increase 2 percent during the fourth quarter, according to a report from location analytics company Placer.ai.
Five Below, a discount chain where most products cost $5 or less, led the trend with visits increasing 9.3 percent during the quarter, and even added more than 200 new locations across the U.S. over the past year, the report said.
“I think the convenience element of the dollar stores will always be a key part of their value proposition,” Rohr said. “As long as the price gaps don’t get too wide with the mass channel, I think convenience will always be the largest part of their competitive advantage.”
One of the biggest players of concern for dollar stores, however, is online marketplace Temu. Offering a variety of inexpensive goods, from vacuum cleaners to 16-foot trampolines, directly from China, Temu has become increasingly popular in recent years.
The app, which uses social media advertising and clearance sales to attract customers, was Apple’s most-downloaded shopping app worldwide in 2024 as consumers searched for the lowest possible prices.
And even after the U.S. accused Temu of data risks after its sister app Pinduoduo was suspended for malware, the company’s aggressive strategy has put a noticeable dent in U.S.-based dollar stores’ profits.
In December 2023, more than 500,000 Dollar General shoppers’ spending on Temu rose to 10 percent of their total spending, up from 1 percent the year prior, the Wall Street Journal reported, citing data from research firm Earnest Analytics.
Then there’s global online retailer Shein, also founded in China and known for its fast-fashion clothing and cheap prices. Shein’s aggressive use of data analytics and influencer marketing has put pressure on other retailers and forced them to adjust their business models accordingly.
Yet, while Temu and Shein — which together comprise about 17 percent of the discount market for fast fashion, toys and other consumer goods — may be taking sales from retailers right now, that could all change soon due to new tariffs imposed by the Trump administration on Chinese imports.
This month, President Donald Trump doubled the tariff on Chinese products to 20 percent, in addition to launching 25 percent tariffs on Mexican and Canadian imports, the Associated Press reported. (A one-month delay on most of the Mexican and Canadian tariffs was in effect as Commercial Observer went to press March 7.)
Under the tariffs, consumers are very likely to see price hikes and potential delays in shipments from companies like Temu and Shein, creating a “significant negative for low-cost retail and raising costs across the board for households and consumers,” Columbia’s House said.
The tariffs were also expected to end what’s known as the de minimis exemption, which allows U.S. imports under $800 to avoid added inspection or customs duties, which sites like Temu and Shein have capitalized on. However, after last-minute amendments made to the plan by Trump this month, that exemption remains in place for products from Canada and Mexico, the business news website Supply Chain Dive reported.
The exemption also briefly went away in February for de minimis goods arriving from China, but it’s since been reinstated until “effective tariff collection systems are in place,” according to Supply Chain Dive.
And, while things are up in the air for online shipping giants, it could be good news for dollar stores.
“[The tariffs] would disrupt and really curtail the ability of companies like Temu and Shein to continue selling at such low prices into the U.S., but would provide some relief for the dollar stores,” House said. “It would put the dollar stores and Temu, at least with respect to the low-cost imported goods they bring in, on a more equal footing.”
Even if people start moving away from apps like Temu, dollar stores, which largely source merchandise directly from manufacturers but also from overseas markets like China, will continue to face their own challenges as more of the new administration’s proposed policies continue to hurt low-income shoppers.
“The combination of policies that they’re proposing … the impact will be hardest on the low-income Americans who shop at these dollar stores,” House said.
Isabelle Durso can be reached at [email protected].
