Dollar Store Business Model Shaken

Labor shortages, competitive pay and supply chain snarls are disrupting dollar stores.

October 04, 2021

Dollar General Sign

ALEXANDRIA, Va.—Dollar stores are struggling to maintain their business model in the later stages of the pandemic, reports the New York Times. Overworked employees, wage increase pressures, supply chain disruptions and communities against dollar stores are among reasons why sales are lagging at these types of retailers.

Last week, Dollar Tree announced that it will begin selling items above $1, reports the Wall Street Journal, showing that the discount retailer is growing out of its price model with the need to account for increased wages and a disrupted supply chain from Asia. Because of the cost-efficient model of dollar stores, retailers are having trouble passing the increased cost of goods on to their price-sensitive customer base. Dollar Tree said it expected as much as $200 million in additional freight costs this year, reports the New York Times.

The dollar store business model is centered around inexpensive labor and low cost products and designed to work even when its customer base is struggling financially. Right before the pandemic hit, Dollar General reported net income of $650 million, or $2.56 a share, in the first quarter of 2020, compared with $385 million, or $1.48 a share, in the first quarter of 2019. However, Dollar General reported net sales decreased 0.4% to $8.7 billion in the second quarter of 2021, compared with $8.7 billion in the second quarter of 2020.

Even though Dollar General hired 50,000 workers this year and personalized training, dollar store workers’ needs are not being met. Employees complain of understaffed stores, unpredictable schedules and high health benefit costs. Earlier this year, workers in various dollar stores walked off the job in protest over conditions. Dollar stores have stiff competition for workers with Rutter’s, Walmart, Amazon and other major retailers offering at least $15 an hour minimum pay and other benefits, such as free college.

Communities are also banning some dollar store companies from opening locations, with over 30 locales placing limits on the number of dollars stores that can open in an area or rejecting a new store completely.

Similarly, Instacart workers are staging a strike on Oct. 16 in an attempt to force the grocery-delivery app to agree to five demands resulting in higher pay.

For retailers across all industries, both compensation and benefits, such as education investments, can lead to increased job applicants. NACS works with the nonprofit Good Jobs Institute to help convenience retailers assess how good jobs could help them reduce costs, increase revenue and improve labor productivity.

Register to attend the 2021 NACS Show October 5-8 at McCormick Place in Chicago and take advantage of the education sessions on human resources, including these sessions developed by retailers for retailers: