Dollar stores flourish in sour economy
The Gazette’s Facebook page asked readers their views on dollar stores: what their favorites are and what they buy there. Here are some of the comments:
• Randi Davis: I go there for arts and crafts stuff, holiday decorations and cards/wrapping paper/bags. When I am planning the annual fundraiser at my nonprofit office, I am at the dollar store a couple times a week, if not every night!
• John Burden: I buy “treat” toys there for the kids. Just a little something if they deserve a reward for something. Also some household cleaners and paper plates and things like that.
• Emi Takeo Gagnon: Storage containers, school craft stuff; I’m a teacher, so it’s nice to have a place to go to so my students can do some fun activities.
• Janeann Ward: Love the dollar stores! They are still in business to make a profit so that tells you what the mark up is on retail items! Party/holiday goods, cleaning products, some food items. Just fun to go see what they have.
• Lee Rabidoux: I shop the dollar store for holiday decorations, gift bags, cards, some business/school supplies and small gifty items. It’s usually the first place I look when I am looking for craft items as well. You have to pay attention that you are really getting a deal. Sometimes you can get more for your dollar at another store.
• Caren Cederberg-Weeks: I love the dollar stores!! Great place to get things for your Military Bootle-Boxes!! Our troops love them! But my latest favorite store is South-Side Bargain Mart on Hancock and Academy! It’s all of Costco and Safeway’s overstocked and returns that are sold for 1/3 to 1/2 the cost!!! They have EVERYTHING!!
• Emmy Sims: I love Dollar Tree! I buy snacks for my daughter’s class, drinks, cleaning supplies, storage containers, glasses and dishes (I have a young kiddo, so we get alot of breakage) So many things! Being able to walk in with $20 and walk out with four or five bags of needed items is wonderful!
• Angela Evans Baudoin: Recently I bought a name-brand mascara that was recommended in Glamour magazine at Walgreens for $8. Couple days later, found the same one at the Dollar Tree. I took the one from Walgreens back and bought eight from the Dollar Tree.
MINNEAPOLIS • Dollar stores are booming.
No longer dusty, out-of-the-way haunts, they have grown into a $56 billion industry, a 43 percent increase since 1998, according to the industry research firm IBISWorld.
One of the few niches of retail expanding in a dim economy, the dollar store industry’s four top players — three of which are Fortune 500 companies — are no longer snubbed by developers, landlords, investors and consumers because of their perceived working-class customer base. Publicly traded Dollar General, Dollar Tree, Family Dollar and 99 Cents Only
Stores are expanding rapidly — so much so that a recent report by Colliers International found that there are more dollar stores nationwide than drugstores — a profound conclusion, given the nation’s aging population.
Dollar stores have responded to the new value-obsessed consumer by providing a brighter, cleaner retail experience with a dependable, well-edited selection of goods, including many food items, some perishable like milk and eggs.
Dollar chains are opening hundreds of new locations. This is a fortuitous development for commercial real estate brokers. As national retailers such as Borders, Linens ’n Things and others shut their doors, landlords have struggled to fill empty space in their shopping centers. Dollar stores often fill the void.
All of the chains emphasize convenience when looking for new space. Typically, they rely on automobile counts on nearby roads as a way of winnowing down potential sites, according to the Colliers report, while other retailers fervently study a potential market’s demographics. In competitive markets, the success of a dollar store often depends on storefront visibility and the impulse shopping urge that it encourages.
“Dollar store success depends on the power of the spontaneous purchase,” said Andrea Christenson, vice president at Cassidy Turley, a Minneapolis-based real estate firm. “You may not need anything going in, but you develop a need once you’re inside.”
Dollar General recently announced that it would open 625 more stores this year — almost two a day — across the country, said Tawn Earnest, spokeswoman for the Tennessee-based chain. She declined to be more specific. Dollar General is the largest chain nationally, with more than 9,800 stores.
Historically, Dollar General has opened in rural areas that were so sparsely populated that even Wal-Mart passed on them. Today, 70 percent of the stores serve communities with fewer than 20,000 residents, according to its annual report. Customers typically live within three to five miles of the store — within a 10-minute drive — and they shop in the store an average of 10 minutes.
Earnest said customers “demand convenience and low prices. We’re positioned well against drugstores because they have higher prices, and against big boxes,” which are so big they’re overwhelming to some shoppers.
When Dollar General announced plans to expand this year, the company also said it would renovate or relocate another 550 stores. At first blush, this may sound like a Herculean effort, but a key to Dollar General’s and its competitors’ success is that a minimal initial investment is required, and maintenance beyond that also is low. The company says it spends about $75,000 for equipment and fixtures to remodel a store, and about $140,000 to relocate one.
The chain does not strictly adhere to the dollar-only price point, and instead offers a variety of value-priced merchandise that’s sort of a mix between convenience and variety store.
Virginia-based Dollar Tree, where every item costs a dollar, prefers opening new stores in strip shopping centers anchored by mass merchandisers like Target or Wal-Mart, or by grocers in urban and suburban markets and small towns. It said the number of stores planned for this fiscal year will be announced next month.
Sometimes grocery stores and big boxes try to restrict dollar stores from their shopping centers because they may erode sales.
“They’re everywhere,” said Jamie Cohen, a broker with Upland Real Estate in Minneapolis, who counts Dollar Tree as a client. “I’ve been representing them for 10 years, and have never encountered any resistance (by landlords).”
Cohen says his experience shows that discounters prefer having a dollar store nearby because they add to consumer traffic.
Conversely, Family Dollar targets low- and middle-income consumers at its 7,100 stores nationwide. About 54 percent of the firm’s customers had annual gross incomes of less than $40,000, and about 24 percent had a gross income of less than $20,000, according to a securities filing. The typical consumer is a female head-of-household.
Because the chain has an urban orientation, it is forced to focus more on price to combat competition, according to the Colliers report. Still, Family Dollar expects to open 450 to 500 stores nationwide this fiscal year, although the locations haven’t been announced yet.
“They offer price and convenience, and that’s pretty much a slam-dunk,” said Mark Miller, an analyst with William Blair & Co.
As chains expand, there is a danger of oversaturation, said Ann Natunewicz, manager of retail research for Colliers. Historically, newer entrants are more vulnerable when consumer sentiment changes, particularly if the economy turns around.
But, she added, “I don’t see any change in consumer sentiment regarding dollar stores in the foreseeable future. It’s now OK to be a value shopper.”
