Why Amazon Is Looking To Steal Dollar Store Customers?

As dollar stores like Dollar Tree (DLTR) and Dollar General (DG) continue to expand with strategies in place to open hundreds of stores within the next year, they seem to have become immune to the hit that many retailers have faced against Amazon (AMZN).

Amazon’s quick and easy approach to buying products online has captivated consumers, but those that want to make small purchases under $5 have gravitated towards dollar stores to avoid shipping charges and longer delivery times.

Amazon has now changed its approach to cheaper products, offering free next-day delivery on many items that cost as little as $1. Prior to the change, these items didn’t qualify for free next-day shipping unless they were attached to a larger order as an add-on product.

The new practice by Amazon may signify that it is looking to steal Dollar Tree and Dollar General customers away. But the catch for Amazon to attract these customers has been to lock them into a Prime membership, which may not be affordable to those same consumers that shop at dollar stores, USA Today reported.

According to a report by Piper Jaffray (via USA Today), only 60 percent of U.S. households with annual incomes between $21,000 and $40,000 had Amazon Prime memberships compared to 85 percent of higher-income households. The cost of a Prime membership may not be justifiable for lower-income families that are living paycheck-to-paycheck, the news outlet said.

For Amazon, this isn’t a first attempt at trying to garner dollar store customers. In 2016, the e-commerce giant added a monthly payment option for Prime members versus its annual fee.

In 2017, Amazon brought in a cash payment system that allowed customers to pay with cash instead of a debit or credit card and also extended a 45 percent discount to Prime members on welfare or food stamps, which was then extended to Medicaid members.

Targeting Dollar Tree and Dollar General even harder, Amazon then introduced a $10 and under product section on its website, offering free shipping on these items for both Prime and non-Prime customers.

Despite Amazon’s best efforts, it hasn’t been enough to deter its dollar store rivals, which have announced aggressive expansion plans, the addition of alcohol at some stores, and major store renovations.

Dollar General said in its Q2 earnings report that it will open 975 new stores, undergo 1,000 store remodels, and relocated 100 stores just in fiscal 2019. Dollar Tree also has big plans. In Q2, it opened 150 with plans to continue its growth throughout the year.

Shares of Amazon stock were up 0.81 percent as of 1:31 p.m. ET on Thursday while shares of Dollar Tree stock were down 0.51 percent at the same time. Shares of Dollar General stock were up 0.29 percent also at the same time.