Since early last year, persistently high inflation, especially in grocery, has severely impacted less-affluent households' discretionary spending. While nearly all consumers are looking for value this year--leading to strong outperformance by off-price and Walmart--this week we took a look at deep value discretionary brands. Within off-price, the greater the affluence of the customer, the higher the lift compare to 2019 in terms of comparable-store sales. Marmaxx (T.J. Maxx and Marshalls) is 26% above Citi Trends by that measure. T.J. Maxx’s household median income is substantially higher than Citi Trends at $65K vs. $39K (based on Census 2019 data). Obviously, grocery inflation of +30% (pre-pandemic to March 2023) and rent inflation of +20%-plus would be very difficult for households that have a household income of $39K, or less, which is half of Citi Trends’ visitors.
Trade area demographics for these brands are shown in the table below, sorted from highest to lowest household median income. dd’s Discounts is a division of Ross Stores; given that it is only around 5% of sales, Ross doesn’t break out its financials. As such, we are reliant upon Citi Trends disclosures to find insights on this segment of retail.
dd’s visits per venue was down -11% for June/July this year versus 2019. By contrast, Citi Trends was down -15%. However, like a lot of retailers that reported over the past few weeks, Citi Trends also noted a material improvement in traffic and sales trends. CEO David Makuen said, “Importantly, we experienced improved traffic levels and strong conversion throughout the quarter, signaling that our product assortment, strengthened by our strategic inventory rebuild in key areas of business is resonating with our customers.” Makuen also shared, “I can confirm that inflationary pressures are still very real for the population cohort that we cater to each and every day.” CFO Heather Plutino said, “We are pleased to have seen traffic and basket improve sequentially from the first quarter as a result of our inventory build rebuild initiative and our efforts to rebalance our good, better, best assortment. So we believe that the building blocks, starting with back-to-school, are in place to have another quarter of sequential year-over-year comp improvement.” Given these comments, and dd’s stronger traffic trends, we’d expect dd’s to have had a meaningfully stronger Q2 2023 comparable-store sales increase and above Burlington.