An iffy economy isn’t bad for every retailer

Inflation is still here, but it’s falling

April 20, 2023
  • James Cook

I must be getting more used to inflation. Back in 2021, when I would check out at the supermarket, I’d get a bit of a shock when the bill was thirty or forty dollars higher than what I thought it had any right to be. However, these days I am mentally prepared. I go into every store expecting to be shocked by growing prices. But thankfully, new data suggests that my weekly supermarket shocks may soon come to an end!

Yes, finally inflation looks like it’s coming down. In March, inflation was at 5%, which is well below recent highs, albeit not yet at the 2% level considered healthy by the folks at the Fed.  

Shoppers want bangs for their bucks

Even as it falls, the effects of inflation are still being felt by a vast swath of consumers. They are after all, spending 2.9% more than they did a year ago, but with inflation at 5%, they’re getting less for more money.

Shoppers feeling that pinch are turning to value retailers. A difficult economy makes value retail especially attractive to those families on a tight budget.  Shoppers have flocked to discount department stores like Walmart and warehouse clubs like Costco where they can be certain that they’ll get the most for what they spend.

Walmart has shown some of the biggest gains in same-store sales, but shoppers are also spending more at warehouse clubs and dollar stores.

Shoppers have focused their spending on daily needs purchases. For example, at Dollar General, recent sales growth was limited to the consumables category, while sales in the home and apparel sections declined.

For value chains that don’t carry many consumables, that can be a problem. Big Lots, for example, saw same-store sales fall 13% in the most recent quarter.  The chain is known for selling home items and has suffered in a time when budget shoppers are forgoing nonessential purchases.

Dollar stores will add the most new stores, but other value chains are growing too

Despite the temporary ups and downs of the economy, most value chains are holding tight to their expansion plans. Dollar General is the most aggressive, with plans to open 1,050 new stores in the coming year. Dollar Tree will open 650 new stores this year. Five Below plans for up to 250.

Warehouse clubs are expanding as well, with Costco adding 14 new US locations this year and BJ’s targeting 10 new stores.

Meanwhile, discount department stores are making only small changes to their fleets. Target will open 20 new stores in 2023 and Walmart has announced the closure of 14 underperforming stores so far this year.

Contact James Cook

Sr Director, Research - Retail