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Recent retail foot traffic data suggests discount and dollar stores should remain resilient in 2023.
Despite a disappointing earnings result from Dollar General (New York Stock Exchange:DG) last week when Christmas sales faltered, data from Placer.ai suggests that the continued impact of inflation is likely to keep consumers bargain hunting in 2023. In fact, the data suggests that Dollar General (managing Director) is an outlier in terms of modest improvements in foot traffic, as the overall category continues to show strength.
“Although the impact of the pandemic on retail may be fading, the category has continued to see increases in visits, likely due to rising cost of living in 2022,” the Placer report explains. “The large footprint of most discount and dollar stores puts most Americans within several miles of a store, category strength is likely to continue into 2023.”
According to the data, visits to Five Below (NASDAQ: FIVE) and dollar tree (NASDAQ:DLTR) by site have increased by 22.1% and 13.3%, respectively, in the month of January over the comparable period of 2020. That is based on growth in the high single digits to low double digits for each in the fourth calendar quarter of 2022 Family Dollar, owned by Dollar Tree (DLTR), showed even greater acceleration, suggesting a renaissance for the brand. Foot traffic to Family Dollar locations increased an average of 19.33% in Q4 2022 compared to Q4 2019. In January, that strength continued with traffic increasing 17.9% per above pre-pandemic levels.
By contrast, visits to Dollar General were up just 4.4% for the year compared to three years, reflecting some hangover from Winter Storm Elliott. Still, Dollar General was already trailing through much of the fourth quarter in foot traffic, according to Placer.ai data, emphasizing the outlier status of its fourth-quarter sales report.
The gains for much of the discount space are even starker in absolute terms given the rapid expansion of Five Below and Dollar Tree, which has been supported by growing demand. The now larger footprint for discount stores is only expected to accelerate foot traffic from its already elevated levels.
“The segment is clearly booming as it continues to attract new and returning customers with its attractive retail and grocery options,” the report concluded. “With a change in the way people shop, discount and dollar stores can expect to continue to thrive through 2023.”
Read more about CFRA’s inversely bearish view on Dollar Tree in 2023.
