Everybody says Amazon is the big winner from this pandemic. But Dollar General looks better positioned to thrive over the long-term.
Amazon’s (NASDAQ:AMZN) sales surged as consumers switched to online shopping. But it’s not the only retailer to profit from the crisis.
While most retailers shut down during the pandemic, dollar stores have remained open as they were declared essential businesses.
Dollar General (NYSE:DG), the largest U.S. dollar-store chain, has seen its business thrive. Sales exploded 27.6% to $8.4 billion in the first quarter. Same-store sales surged 21.7%, eclipsing gains by larger retailers like Target (NYSE:TGT) and Walmart (NYSE:WMT).
Excluding certain items, Dollar General earned $2.56 per share, beating estimates of $1.74. Store visits to Dollar General jumped 31.4% in March and 19.2% in April.
Those good results have helped to boost Dollar General’s stock price, which is up close to 25% year-to-date.
Dollar General is a business that does very well when times are tough. High unemployment means consumers have less money to spend, creating the perfect environment for increased dollar store traffic.
Consumers want to get the most out of each dollar as uncertainty persists around the pandemic and the economy. They cut back on discretionary spending but continue to buy food and household essentials. As Dollar General sells everyday essentials and groceries at low prices, it’s no surprise customers are attracted to its stores.
Besides low prices, consumers might prefer Dollar General over big stores like Walmart because they are smaller, making it easier to avoid large crowds. Plus, Dollar General’s stores are easily accessible, with 16,000 locations within five miles of 75% of the U.S. population.
Amazon isn’t a threat to Dollar General. Most Americans still prefer in-store shopping, especially for groceries. Even in the cities hardest hit by the pandemic, more than seven in ten people continued to visit stores for groceries and other essentials, according to surveys from McKinsey & Co.
More than a third of shoppers say they will reduce their use of web groceries or stop ordering food online entirely when lockdowns are eased, according to a survey conducted for Bloomberg by Civic Science.
That means Amazon could see its sales fall in the coming months as fewer people shop online, while Dollar General sales should continue to increase.
Dollar General has become a growing threat to grocery stores as it leverages its sprawling brick and mortar footprint and growing distribution network to sell food at unbeatable prices.
While low-income Americans usually make up the majority of Dollar General’s consumers, the retailer attracts middle and higher-income groups. It may be able to gain market share during the pandemic.
Some of this was born of necessity – because other stores didn’t have stock or were inconvenient to get to – however, the introduction has now been made and there is no doubt that some of these new customers will stick even if only for irregular shopping trips. In our view, we see the pandemic as providing a long-term advantage for Dollar General.
Dollar General should continue to see traffic and profit boost for the foreseeable future. The company expects to exceed its annual sales and profit forecasts.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The writer owns shares of Walmart (WMT).
Last modified: September 23, 2020 1:59 PM