As Economic Pressures Grow, Retailers Focus on Value, Customer Experience and Community Ties

As escalating costs strain household budgets, PYMNTS Intelligence’s latest paycheck-to-paycheck study, “New Reality Check: The Paycheck-to-Paycheck Report: Struggling Consumers Go to Short-Term Strategies to Manage Higher Expenses,” reveals that 78% of consumers have experienced higher costs for essential services and about two-thirds live paycheck to paycheck.

Among this group, 24% struggle with bill payments, with many using strategies like skipping bills or negotiating rates to manage expenses. While 41% of consumers use autopay, its adoption is lower among lower-income individuals, who are more likely to face cash flow issues when automatic payments are due.

These consumers are often forced to rely on short-term tactics to stretch their budgets, making it more critical for retailers to offer affordable and convenient shopping options and memorable customer experiences.

In response to these pressures, some major retailers are adjusting their strategies to better serve the needs of these financially strapped shoppers. Companies like Dollar General are focusing on enhancing customer experience by offering more affordable, private-label products that help mitigate the impact of higher costs.

Here are four retailers working to elevate customer engagement in a challenging economic climate where many consumers are seeking value and living paycheck to paycheck.

Dollar General Expands Private Label

Dollar General is expanding its private brand offerings by introducing about 100 new products in the first quarter of 2025, with more than half of these additions under its Clover Valley grocery brand. This is part of a larger effort to offer more affordable and on-trend food items, including new options like cinnamon rolls, ice cream, salad dressings and honey mustard.

The retailer is also promoting its private label brands through targeted marketing initiatives such as flyers, emails and social media campaigns, coinciding with Store Brands Month in January.

This strategy is in line with the trend among discount retailers like Walmart and Grocery Outlet, who are also expanding their private label food selections.

Dollar General has over 3,200 consumable private brand items currently on the shelves. The retailer’s efforts include adding fresh produce to more locations.

Kohl’s Pressured to Reconnect With Loyal Shoppers

Kohl’s, which is facing pressure from longtime customers to return to its roots after recent changes aimed at attracting younger shoppers, such as reducing fine jewelry and private-label offerings to make space for Sephora and Babies “R” Us sections, plans to close 27 underperforming stores and an eCommerce fulfillment center in San Bernardino, California, by May, representing about 2.3% of its 1,150 locations.

The company will also reduce its corporate workforce by 10%, as it faces challenges from shifting consumer shopping habits. Kohl’s reported declining sales in Q3 2024, with net sales down 8.8% year over year, and anticipates $60 million to $80 million in charges from the closures, mostly in Q4 2024.

These strategic changes, designed to tackle inventory and operational issues, have led to a loss in revenue, with over half a billion dollars in missed sales. While initiatives like Sephora and Babies “R” Us have helped attract younger shoppers, Kohl’s is now shifting focus back to merchandise and offerings that resonate more strongly with its traditional customer base.

CEO Ashley Buchanan, who recently took over from Tom Kingsbury, will need to balance the desire to attract younger shoppers with the need to retain loyal customers upset by the changes.

Buchanan, formerly CEO of Michaels, faces the challenge of revitalizing Kohl’s during a period of uncertainty, as the company has cycled through three CEOs in three years. He must also address the store’s disorganization and appeal to new and existing shoppers without alienating either group.

Target’s Strengthens Connections

As retailers focus on strategies to strengthen connections with customers and communities, Target has taken steps in those directions with its “Bullseye Strategy.”

According to the strategy, Target officials are strengthening their business by creating a “sense of belonging for our team, customers and communities, with a strong focus on inclusion. This commitment to inclusivity is central to our culture and plays a key role in driving both consumer engagement and business success. In every area of our business, we are constantly listening, learning and adjusting to set ourselves up for long-term success. As we start a new fiscal year, we’re continuing to shape the next chapter of Belonging at the Bullseye.”

The strategy is rooted in:

Our team: We recruit and retain team members who represent the communities we serve and fuel a culture where everyone has access to opportunity and growth, enabling our team to deliver business results.

Our guests: We aim to create joyful experiences through an assortment of products and services that help all guests feel seen and celebrated, increasing relevance with consumers.

Our communities: We build deep and lasting relationships with the communities we serve, driving impact, economic vitality and connection that fuels loyalty.

Five Below: Product, Value, Store Experience

Five Below reported an 8.7% increase in net sales, to $1.19 billion for the 2024 holiday period, compared to $1.10 billion the previous year. The company is focused on enhancing product offerings, value and store experiences.

As a result, Five Below officials expect to meet its fourth-quarter sales projections.

Tom Vellios, executive chairman and co-founder of Five Below, discussed the company’s holiday results and strategy to spark engagement and revenue at the recent ICR Conference.

“We’re very pleased with our results,” he said. “A few months ago, we told everyone our strategy was to focus on product, value and experience. We felt that focus would drive the rest of the company and put it on a path to growth. The team leaned in and has done an outstanding job.

“We still have a lot to do, but our service in stores was better, we invested in labor, and our team was energized. Our customers benefited and we benefited. We’ve always been a value retailer, but we leaned in heavier, particularly on price points of $1, $2 and $3. We amplified the value proposition. The strategy we put in place is beginning to work, but we still have a ways to go.”