The insight: Dollar General expects its core customer to be under significant pressure in 2025 as worsening economic conditions and inflation make it difficult for those shoppers to afford necessities.

• “Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities,” CEO Todd Vasos said.
• Those pressures led customer traffic to decline 1.1% YoY in Q4, although a 2.3% increase in average transaction size pushed same-store sales growth into positive territory.

Consumer pessimism is spreading: Dollar General’s view of the strain on lower-income consumers echoes similar observations from Walmart, McDonald’s, and Kohl’s, to name but a few.

• Walmart CEO Doug McMillan noted in a February interview that stretched consumers are switching to smaller pack sizes by the end of the month because “their money runs out before the month is gone.”
• Both McDonald’s and Kohl’s reported sluggish spending from lower-income consumers as the cohort pulls back on all except essential purchases.

That caution is slowly spreading to more affluent consumers, who are also grappling with higher inflation for everyday products like eggs as well as feeling increasingly worried about the direction of the economy.

• Trade-down behaviors among middle- and upper-income consumers began accelerating in Q4 and have sped up in the last few weeks, Vasos said.
• That’s good news for Dollar General and other discounters but is a worrying sign for the rest of the retail industry, which has largely relied on buoyant spending from wealthier shoppers to drive growth.

Dollar General faces headwinds: While Dollar General is poised to benefit should shoppers’ trade-down behaviors persist, its business model is under pressure as its customers spend more on low-margin consumables than discretionary goods.

• Dollar General’s Q4 same-store growth was entirely attributable to shoppers buying more consumables, which currently account for 82% of the retailer’s sales mix. Sales in the home, seasonal, and apparel categories declined in the same period.
• That shift has allowed the retailer to grow its grocery share, but at the expense of its profit margin, which fell eight basis points YoY to 29.4%.
• Exposure to lower-income households also makes the chain vulnerable to potential changes in SNAP funding.

Amid a more challenging environment, Dollar General is rethinking its aggressive expansion strategy.

• The retailer plans to close 96 Dollar General stores and trim its Popshelf footprint by roughly one-quarter to optimize its resources.
• Some of that capital will likely go to the 575 new stores the retailer has in the pipeline for this year, as well as to the 4,250 locations set to be remodeled.

Our take: Dollar General’s warning about the health of its core consumer underscores the difficult terrain retailers must navigate in 2025, as tariffs and economic volatility tank confidence and push shoppers’ budgets to the limit.