Higher-income Americans are still flocking to discount stores to escape inflation - and for a 'sense of adventure'

By Zoe Han

Affluent shoppers continue to 'trade down,' three years after prices started soaring. But it's not just about saving money.

Inflation has slowed, but higher-income Americans are continuing to shop at discount stores like Walmart and Dollar Tree and buy store brands instead of national brands. But experts say saving money is only part of the reason for these shopping behaviors

People were under a lot of pressure in the past four years -they were hit first by the pandemic, which kept families indoors and choked supply chains, and then they felt the pinch of high inflation. But discount retailers continue to report new consumers finding their way to their stores, especially households earning $100,000 and up, and researchers have seen increased sales of private-label, or store-brand, products across different types of stores.

Shoppers who make more than $100,000 a year were among the biggest contributors to Walmart's market-share gains last quarter, Walmart CFO John David Rainey said in the company's latest earnings call in February. A similar message was repeated in Dollar Tree's March 13 earnings call. CEO Rick Dreiling said the discount store continued to attract new and higher-income customers and added about 3.4 million new customers in 2023, mostly from households earning over $125,000.

Dollar Tree (DLTR) did not immediately respond to MarketWatch's request for comment. Walmart (WMT) did not respond to a request for comment.

At the same time, households have been showing more interest in store brands. After the trend of "trading down" - the term for consumers trying to save money by choosing cheaper products - first popped up during the pandemic, interest from middle- and upper-income households in store brands slowed down in 2022. But it gained steam again in the past year, said Kayla Bruun, senior economist at Morning Consult, a consumer analysis company.

In 2023, sales of store-brand products surged 6% compared to the previous year, according to a recent report from consumer analytics company Circana.

Part of the reason was that some households continued to struggle with essentials like grocery bills, and wanted to stretch their dollars as far as they could, said MaryEllen Lynch, principal at Circana. Right after getting hit with the pandemic and not finding what they needed in stores, families were hit with inflation, she said. "It's the constant wave hitting consumers" that turned those shoppers to store brands and discount stores, she added.

Consumers' interest in store brands may be also driven by a desire to save even more money after they've already turned to discount retailers to cut costs, Brunn said.

"When you reach that lower limit, you can't trade down," she told MarketWatch. "And when prices were rising very rapidly, more consumers were hitting the limit faster."

Shoppers especially turn to store brands over national brands to save money on pantry items and snacks, such as tortilla chips, pretzels and potato chips, the Circana report found.

But it's not just about pinching pennies. Discount stores also provide fun.

In the past few years, more retailers have ramped up their private-label games and come up with more, better and higher-quality store-brand products, said Phil Lempert, editor of SupermarketGuru.com.

"I don't consider moving to a store brand trading down," Lempert said. Instead of seeing a store brand as a compromise, more people have turned to store brands because they trust them more since 2020, he said.

"What they found during the pandemic is that their favorite brand was not on the shelf, but store brands were," he said. There may have once been a stigma around buying lesser-known brands, but supply-chain disruptions and urgent demand for essential products changed that, Lempert added.

And when it comes to dollar stores, aside from cutting down on costs, people also enjoy the shopping experience - it gives them "a sense of adventure," Lempert told MarketWatch. You never know what you will find in a dollar store, he added.

Store brands may also allow people to experience a sense of fun from social-media trends more easily and economically, Lynch said. When cottage cheese went viral on TikTok, the sales of store-brand cottage cheese also went up, similar to that of national name brands, according to Circana. People want to try out the social trend, but also don't care that much about the brand they use, Lynch said.

"They'll just grab the cheapest cottage cheese," she said.

-Zoe Han

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-21-24 0605ET

Copyright (c) 2024 Dow Jones & Company, Inc.