Dollar Stores Face Margin Squeeze as Gas Prices Climb

Dollar stores have spent the past year riding one of retail’s strongest tailwinds: Americans across nearly every income bracket hunting for cheaper goods. The Commercial Observer reports that that trade-down effect helped Dollar General, Dollar Tree, and Five Below post improved results through late 2025 and into 2026, supporting thousands of planned store openings and remodels nationwide.

Now, rising fuel prices and mounting pressure on household budgets are threatening to complicate that growth story. Analysts say the same economic conditions that initially benefit discount retailers can eventually erode both consumer spending and retailer margins.

A Broader Customer Base Fuels Growth

Higher-income households became an increasingly important customer segment for discount chains over the past year. Brandon Svec, national director of retail analytics at CoStar, told Commercial Observer that consumers earning more than $100,000 annually are increasingly shopping at Dollar Tree, Dollar General, and Walmart to stretch spending.

That shift helped support major expansion plans. Dollar General opened 581 new US stores in 2025 and plans to remodel more than 4,000 locations and open another 450 stores this year. The company expects to spend up to $1.6B during the first phase of its multiyear renovation strategy.

Dollar Tree is also pushing upscale. The retailer opened 402 stores last year and plans roughly 400 more in 2026 while continuing its “3.0” multi-price conversion strategy. More than 5,300 of its 9,000-plus stores now feature expanded pricing formats designed to capture higher-income shoppers. According to Bloomberg, nearly half of new Dollar Tree locations over the past six years opened in wealthier trade areas.

Five Below remains in expansion mode as well. The retailer ended 2025 with 1,921 stores and a 23% increase in net sales while maintaining its long-term target of more than 3,500 locations by 2030.

The Details Behind the Pressure

The sector’s momentum comes as consumers face fresh economic stress tied to rising oil prices following the US-Iran conflict that escalated in February. National gas prices are approaching $5 per gallon, raising concerns about both transportation costs and discretionary spending.

That creates a double hit for discount retailers. Retailers such as Dollar General and Dollar Tree typically spend between 3% and 6% of gross sales on transportation costs alone, according to CoStar. Svec estimated that a 40% increase in transportation expenses could reduce retailer margins by 100 to 150 basis points.

At the same time, lower-income shoppers — still the core customer base for many dollar-store chains — are under growing financial strain. Oxford Economics reported that US household debt reached a record $18.8T in Q1 2026, while the University of Michigan’s consumer sentiment index fell to 48.2 in May, its lowest reading on record.

Dollar General CEO Todd Vasos acknowledged the pressure during the company’s March earnings call, saying many customers are struggling to afford even basic necessities amid ongoing inflation.

Traffic Trends Start to Split

Foot traffic data suggests the discount retail sector is no longer moving in lockstep. According to Placer.ai data cited by Commercial Observer, Dollar Tree traffic turned negative for seven of the last eight months, falling 6.9% year over year in April.

Dollar General, whose rural locations often function as de facto convenience and grocery stores, has maintained modest traffic growth. About 28% of visits to Dollar General stores originate within one mile, according to a May Placer.ai report, reinforcing the chain’s dependence on highly localized convenience shopping.

Five Below has continued outperforming, with April visits climbing 21.9% year over year as shoppers remain willing to spend selectively on low-cost discretionary items.

That divergence matters for retail landlords. Dollar General and Dollar Tree remain among the largest contributors to net retail store openings nationally, making them critical tenants for neighborhood centers and rural retail corridors. That expansion push has increasingly shifted toward wealthier suburban trade areas as discount chains try to capture higher-income shoppers looking to stretch spending during a period of persistent inflation and economic uncertainty.

Why It Matters

Dollar stores have become one of the most reliable demand drivers in retail real estate during a period when many national chains are shrinking footprints. Their rapid expansion helped absorb vacant big-box and inline space left behind by bankruptcies and consolidation across the broader retail sector.

But the model depends heavily on operational efficiency and frequent customer trips. Rising diesel prices, weaker hiring trends, and strained household budgets could narrow already-thin margins while reducing shopping frequency, particularly among lower-income households.

Retail consultant Kate Newlin told Commercial Observer that location quality is becoming increasingly important as consumers grow more selective about where and how often they shop.

What’s Next

Investors and landlords will closely watch first-quarter earnings reports later this month for signs of whether fuel-price pressures are already affecting profitability and store traffic.

Expansion plans remain intact for now, but analysts expect operators to become more disciplined about site selection, prioritizing convenience-oriented locations near residential corridors, gas stations, and necessity-based retail anchors.

The broader question is whether higher-income shoppers continue trading down long enough to offset mounting financial stress among lower-income consumers. If that balance breaks, one of retail real estate’s strongest growth categories could face a tougher operating environment heading into the second half of 2026.