Despite a challenging retail environment, discount chains Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) are up over 20% in the past week after reporting strong earnings.

What’s the big deal? American shoppers are shifting their spending towards discounted retailers and dollar stores — helping them cruise through 2022.

• Both companies beat expectations and raised their outlook — seeing food become a more significant part of shoppers’ baskets, driving sales.
• In 2022,DLTR
  is up 17%, andDG
  is down 3% — outperforming the broad retail sector — with the SPDR S&P Retail ETF (NYSE:XRT) down 25%.

In contrast, retail giants like Walmart and Target are struggling — seeing costs rise and having difficulty keeping the right items in stock. Changing consumer behavior has also driven a shift in consumer spending, benefiting dollar store chains:

• Per WSJ , dollar store chains tend to see more robust sales as the economy weakens.
• In the first quarter, Dollar General CEO, Todd Vasos, saw more traffic from higher-income shoppers and more people staying closer to home to save gas.

Dollar store chains multiply: Dollar store chains have rapidly expanded in recent years. In 2021, Nearly one in three new store openings was a Dollar General store, and 45% of new stores announced were dollar store chains.

Dollar General is up 231% in the past five years, outpacing the S&P 500’s 87%. Here’s how DG plans to maintain its momentum.

• Open 1,100 new locations and expand further into higher-margin beauty products, produce and grocery.
• Expand its new store Popshelf — a new concept targeting younger and wealthier shoppers — from 30 stores currently to 1,000+ by the end of 2025.

The chain is also prioritizing its private labels and, to fight inflation, has raised prices on some items to $1.25. These chains are coming after more prominent retailers, dollar by dollar.