Dollar Tree has said that their customers are spending less on discretionary, non-essential purchases

Dollar Tree has said that their customers are spending less on discretionary, non-essential purchases, like electronics and toys, and were spending more on essential items for the household, including food.

In a recent discussion with investors on earnings, Dollar General disclosed a decline in sales over the summer compared to the more stable figures observed in the spring. The attributed reasons for this downturn were elevated prices and increased interest rates, factors contributing to a more cautious approach to spending among their customer base.

Dollar General CEO Jeff Owen conveyed that their core customers express ongoing financial constraints, noting the depletion of their savings. Consequently, these customers grapple with the persistent impacts of inflation.

Both Dollar General and its primary competitor, Dollar Tree, noted reduced spending on non-essential, discretionary items such as electronics and toys. Instead, customers shifted their focus towards essential household purchases, particularly food, according to insights shared with The Wall Street Journal.

This aligns with Owen's remarks in June during the company's first-quarter earnings call when he attributed reduced discretionary spending to lower-than-expected tax refunds, leading to diminished discretionary income among customers.

The trend is raising concerns about the broader U.S. economy, especially as wealthier Americans increasingly turn to dollar stores in search of better values. Interestingly, in mid-2022, both Dollar General and Dollar Tree experienced heightened sales, accompanied by an influx of high-income customers.

Mike Witynski, Dollar Tree's CEO, highlighted during the second-quarter earnings call in 2022 that a significant portion of the store's new customers in the preceding 12 months came from households with an annual income of $80,000 or more. Witynski emphasized that these consumers rely on their stores to align with their budgetary objectives.

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