By Tonya Garcia, MarketWatch
With unemployment soaring and consumers tightening their budgets, analysts forecast elevated sales at dollar stores like Dollar General Corp., Dollar Tree Inc. and Family Dollar.
U.S. weekly jobless claims rose Thursday by more than 2.1 million, with about 48 million Americans filing for jobless benefits since mid-March, when the country began lockdowns to beat back the spread of coronavirus.
Even if that figure is down from 2.4 million the week prior, it’s the 10th consecutive week above the two million mark.
Analysts forecast that the dire unemployment situation will continue for the foreseeable future.
“Unfortunately, elevated unemployment is likely through at least the balance of the year, in our opinion,” said John Zolidis, president of Quo Vadis Capital.
Dollar General /zigman2/quotes/200691429/composite DG +0.33% and Dollar Tree /zigman2/quotes/203712248/composite DLTR -0.46% both reported earnings and sales that exceeded expectations. Dollar Tree’s portfolio also includes the Family Dollar chain.
With more consumers minding, or restricting, their spending, low dollar store prices are appealing. Moreover, as consumers flocked to big-box stores, the smaller square footage of these dollar stores is less stressful for customers looking for a way to avoid large crowds.
Dollar General has 16,000 stores that are located within five miles of more than 75% of the U.S. population, said Todd Vasos, chief executive of Dollar General on the Thursday earnings call. These stores have a “convenient small-box format providing for quick in and out access and limited crowds, both of which are conducive to social distancing,” as well as merchandise that covers everyday essentials, he said, according to a FactSet transcript.
GlobalData has found that many Dollar General locations are in rural or suburban areas where the distance to a competing retailer might be greater.
“This localness was a major advantage during the crisis when many households were reluctant to travel too far and some were nervous about visiting big box stores where it is very difficult to reduce dwell time,” wrote Neil Saunders, managing director of GlobalData Retail.
Moreover, dollar stores had items in stock that were sold out at places like Walmart Inc. /zigman2/quotes/207374728/composite WMT +0.50% and Costco Wholesale Corp. /zigman2/quotes/201191698/composite COST +0.56% amid shopper pantry-loading.
Dollar General, in particular, which Saunders says has been able to attract customers from across the income spectrum, may be able to gain market share through the pandemic.
“From our data, this crisis has balanced out the demographics even more and Dollar General has secured new shoppers from across the income spectrum,” Saunders said.