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It was finally starting to look like the lowest-earning Americans had caught a break.
Yet as they feel the squeeze of rising health-care and housing costs, the lift from a stronger job market and low fuel prices hasn't been enough for these consumers to feel relief. And for hundreds of thousands who are unemployed, a change in qualifications for Supplemental Nutrition Assistance Program benefits is making it even tougher to put food on the table.
That economic impact is starting to impact some discount retailers.
During the second quarter, Dollar General said that combined with food deflation, these cutbacks dented its same-stores sales between 0.6 and 0.7 percent. Though a reduction in the number of people enrolled in food stamps did not play a material role in Dollar Tree's comparable sales slowdown, its target consumer "continues to be under a lot of pressure," CEO Bob Sasser said.
Yet the picture remains muddy. Like the dollar stores, Wal-Mart leans heavily on low-income shoppers to fuel its sales gains. But unlike its small-shop competitors, Wal-Mart U.S. recorded its biggest comparable sales gain in four years during the second quarter.
"Everybody's trying to figure this out," Joe Feldman, senior managing director at Telsey Advisory Group, told CNBC. "I do think that there's something broader than just simply saying Wal-Mart's taking share."
Indeed, Dollar Tree and Dollar General — which are in the midst of robust expansion plans — are growing their overall sales at a faster clip than the rest of the market. That indicates they're grabbing market share, said Craig Johnson, president of Customer Growth Partners.
Meanwhile, data from Checkout Tracking, a service of The NPD Group, found that in the six-month period ended July, dollar store buyers gave roughly 30 percent of their spending to the major mass merchants. That's consistent with the same six-month period in 2015, the firm said.
One possible explanation for Wal-Mart's outperformance is that some Target shoppers are starting to spend there, Feldman said. In the second quarter, the bull's-eye retailer reported a comparable sales decrease of 1.1 percent, as it struggled to pull shoppers into its stores. Wal-Mart, on the other hand, recorded its seventh straight quarter of positive traffic.
"They have a very diversified base [of shoppers]," Johnson said about Wal-Mart. "There's a ton of people in that upper-income quintile that shop there."
That's particularly true in certain southern suburbs, including the outskirts of Atlanta, Johnson said. And as the retailer does a better job of keeping its stores clean and having merchandise in stock, it stands to attract more well-heeled shoppers.
Making its stores easier and cleaner to shop are two of Wal-Mart's major initiatives to turn around its U.S. business. The retailer is also taking steps to lower prices on key items across its stores, including essentials like a gallon of milk, Johnson said.
While it typically takes time for shoppers to notice incremental price changes, Wal-Mart will likely appeal to a broader swath of consumers as it rolls out these price cuts. On a call with reporters last month, Wal-Mart CFO Brett Biggs confirmed the retailer is picking up more customers.
Still, dollar stores have certain advantages over Wal-Mart's supercenters, which vastly outnumber its smaller Neighborhood Market locations. Even as Wal-Mart has grown its base of smaller stores to nearly 700, its footprint is outnumbered by more than 14,000 Dollar Tree and sister Family Dollar stores, as well as the 13,000 Dollar General locations.
What's more, dollar stores are typically situated closer to the population, meaning shoppers don't have to spend as much on gas to visit them. They also specialize in small, less-expensive pack sizes that help low-income shoppers spread out their spending.
"You would think if the consumer was under such pressure, the dollar stores are where they'd shop," Feldman said.
Despite overarching confusion about the state of the consumer, one thing is becoming clearer: Even with consumer confidence on the rise and fewer workers being laid off, the low-income shopper isn't as well off as many on Wall Street had hoped.
"Their disposable income is getting eaten up," Johnson said. "They are in worse shape than the experts think."