Dollar General and Dollar Tree Are Both Dollar Stores, but They're Actually Very Different. Here's What That Means for Investors.

Core Insights - Dollar General and Dollar Tree, while categorized as dollar stores, have significant differences in their business models and customer demographics, leading to distinct stock performance trajectories [2][6][21] Company Overview - Dollar General operates 20,594 stores across the U.S. and generated $40.6 billion in sales last year, focusing on a wide range of price points typical for discount retailers [4] - Dollar Tree consists of 8,881 Dollar Tree stores and 7,622 Family Dollar stores, with total sales of $17.6 billion last fiscal year; however, the Family Dollar chain is set to be sold, which will reduce Dollar Tree's footprint [5][6] Customer Demographics - Dollar General has a higher concentration of stores in rural areas (42%) compared to Dollar Tree (30%), while Dollar Tree has a stronger urban presence (32% vs. 19%) [8] - The income demographics show that both companies serve similar lower and middle-income customers, but Dollar General has a slightly higher average annual spend per customer at $522 compared to Dollar Tree's $290 [8][9] Sales Mix - Dollar General's sales are heavily weighted towards consumables (82.7%), while Dollar Tree has a more balanced mix with 48.8% in consumables and 51.2% in discretionary items [10][11] - The upcoming sale of Family Dollar is expected to shift Dollar Tree's sales mix further towards discretionary goods, which may impact its competitive positioning [11] Economic Environment Impact - Dollar General's reliance on consumables poses a risk in high-inflation environments, as consumers may cut back on spending, affecting sales growth [12][13] - Conversely, Dollar Tree's focus on discretionary items may provide a competitive edge during inflationary periods, as consumers seek affordable alternatives for non-essential purchases [15][17] Future Outlook - An improving economy could favor Dollar General, as higher household incomes may enhance its customer base, but Dollar Tree's urban exposure and unique product offerings may still sustain its performance [19][20] - Current underperformance of Dollar Tree shares is partly attributed to the ongoing issues with Family Dollar, but if economic conditions remain challenging, Dollar Tree may present a more attractive investment opportunity [22][23]