While much of the retail sector is struggling, Dollar Tree just recorded one of its best quarters in years, underscoring how discount chains can thrive when consumers feel squeezed. The retailer reported a 9.4% jump in sales, to almost $5 billion for Q3, with same-store sales up more than 4%, reports Quartz. The main driver? A 4.5% increase in average ticket size, a notable achievement at a time when foot traffic is flat or falling across a significant chunk of the retail environment.
Dollar Tree's success is partly due to its growing focus on discretionary items—the "treasure hunt" buys that keep shoppers coming back for surprises. The company's strategy of offering higher-priced items at $3, $4, and $5 alongside its core $1.25 price point appears to be working, especially during the holidays. Halloween this year proved to be a record-breaker, and discretionary sales now make up just over half of the company's mix. As a result, gross margin improved by 40 basis points, nearing 36%, and the company lifted its full-year earnings outlook.
Dollar Tree's momentum comes as middle-income shoppers are increasingly looking for value, and many are trading down from other retailers. While giants like Walmart are also benefiting from this shift, others, such as Target, are feeling the pressure. Dollar Tree, however, is managing to attract both budget-conscious shoppers and those seeking small indulgences in a tough economic climate. In fact, a good portion of those entering Dollar Trees nationwide are from a more comfortably situated demographic.
On Wednesday's earnings call, Dollar Tree CEO Mike Creedon said about 60% of the 3 million or so extra shoppers that showed up in the third quarter were from households pulling in at least six figures, per the Wall Street Journal. Still, the upshot, per Quartz: "Dollar Tree is outperforming not because the consumer is healthy, but because the retailer knows exactly how to serve one in distress."
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