Looking at early 2023 visitation trends for non-discretionary retail categories, it’s clear that inflation and other macroeconomic headwinds continue to weigh on consumers. Below, we’ve included visitation data for several key consumer staples retail categories (superstores, dollar stores, warehouse clubs, drugstores, value grocery stores, traditional grocery stores, and convenience stores/gas stations). Our data indicates that dollar stores, value grocery, and convenience stores are the only categories that have posted positive year-over-year visitation growth thus far in 2023, although superstores and warehouse clubs are not too far off (potentially a result of the middle-income trade down we discussed last year).
While it’d be easy to look at the previous chart and say that chains with the lowest prices are capturing visitation market share, we’re also starting to see a divergence in performance within the categories themselves, with some consumers starting to balk at the price increases put in place by several chains during 2H22 but continuing to frequent those that have introduced “innovative value”: offering key brands or unique merchandise at a value prices. In many ways, it’s reminiscent of the visitation trends we discussed last year across the QSR sector, where the consumers started to push back on chains that had implemented high-single-digit to low-double-digit menu price increases but continued to visit chains that have found ways to keep prices low or offer differentiated promotions.
In our Q3 2022 category review for dollar stores, we compared visitation trends for Family Dollar, Dollar General, and Dollar Tree, and observed that Family Dollar was capturing visitation market share from Dollar General as it kept prices low on key staple products and made merchandising improvements. Our data indicates that this trend has continued throughout the final months of 2022 and into 2023, with both Family Dollar and Dollar Tree seeing year-over-year visit gains while Dollar General continues to see declines (below).
Retailers deploying low pricing strategies are connecting with lower-income consumers, but as we’ve observed in other retail categories, differentiated merchandising and effective promotions are equally important for driving visitation trends. As such, we’ve also been intrigued by the recent visitation trends at Five Below. Ahead of this month’s ICR Conference, the company reported a comparable store sales increase of 0.9% for its holiday sales period (Oct. 30, 2022-Jan. 7, 2023), which was near the high end of 4Q22 guidance calling for a 1% decline to a 1% increase. Management attributed the gains to “WOW” merchandising efforts (stocking unique products in a “treasure-hunt” environment), though easing supply chain constraints and more targeted marketing efforts also played a part.
Placer.ai data indicates a 1% decrease in visits per location during calendar Q4 2022, which we believe is consistent with the reported figures when combined with modest pricing increases and ongoing remodels to the Five Beyond store format (which features items priced above its $5 price point). Impressively, these figures compare favorably to Dollar General’s pOpShelf, which has seen a dropoff in visits per location the past several quarters.
Five Below’s visit per location trends are notable as the company looks to open 200-plus stores in 2023 and convert another 400 locations (30% of its existing store base) to its Five Beyond format. Looking ahead, Five Below and its innovative value approach appear well positioned to capture visitation share from Party City (which filed for Chapter 11 bankruptcy last week) and Bed Bath & Beyond (which recently concluded that "there is substantial doubt about the company's ability to continue as a going concern" and is considering strategic alternatives (including relief under the U.S. Bankruptcy Code).
