||What's Behind the Dollar Store Craze?
Bargain Hunters Expected to Stick Around as Economy Improves
There are few places where a buck buys more than at 99 Cents Only, Dollar Tree and other "all one price" stores, a retail sector that thrives when customers pinch pennies.
The $52 billion dollar-store industry has been expanding as middle-class shoppers trade department stores and supermarkets for extreme discounting.
Dollar-store sales have grown 4.3 percent, on average, in each of the past five years, said Justin Waterman, retail analyst for IBISWorld.
"That's extremely high in light of the recession in 2008 and the negative consumer sentiment in 2009," Waterman said. "Any time there's a slump in the economy, this industry picks up, because consumers are more price conscious."
Meeting that demand are publicly traded companies like 99 Cents Only Stores, Dollar Tree, Dollar General and Family Dollar, which have acquired smaller chains, as well as many mom-and-pop stores. They compete with Target and Walmart as well as supermarkets with smaller, convenient locations, often in urban areas.
Years ago, dollar stores had a bad rep. Shoppers perceived them as junk stores stocking leftover Halloween
merchandise and dented cans. Today's stores are clean and well-arranged, with an emphasis on brand names, and some "core" items such as bread that are always in stock. You'll find obscure brands side by side with household names like Kellogg's and Oscar Mayer, sometimes in downsized packaging to meet the $1 price point.
Dollar Tree sells everything from toilet-bowl cleaner to Mardi Gras masks and cans of Progresso soup. Another market leader is 99 Cents Only Stores, which does a brisk business in fresh romaine hearts, batteries and Malt-O-Meal cereal.
"It's a mix of everyday items but it's also an exciting treasure-hunt shopping experience, with closeouts and deliveries several times a week," said Jeff Gold, president and chief operating officer of 99 Cents Only Stores.
Gold believes that his stores have much to offer middle-class customers. "We feel that if and when they come in our stores, they'll appreciate the values we offer and enjoy the shopping experience," he said.
As dollar stores have upgraded, consumers don't feel embarrassed to be seen at one.
"Some people might have thought that there was a stigma attached to shopping at dollar stores," Waterman said, "but when they saw their friends shopping at them and realized the potential savings, they were more likely to frequent these stores."
San Diego resident Maria Lopez, 27, said she shops regularly at a new 99 Cents Only location. "I like dollar stores because even without coupons you can still get a good deal on brands," she said. "Of course, you have to make sure it's not expired and some of the products are smaller sizes. But you can fill up your pantry by shopping there."
Lopez, who blogs about saving money at drugstoredivas.net, said she found Earthbound Farm organic salad, Philadelphia Cooking Creme and Farmer John ham, all for 99 cents each, on recent trips.
"People know me -- I'll go anywhere for a deal," she said.
The big question is whether middle-class customers will keep shopping there once the economy improves.
"I've got a feeling that dollar stores are going to have some staying power," said consumer-behavior expert Bernhard Schroeder, director of the Entrepreneurial Management Center at San Diego State University. He said consumers who feel "burned by the recession" will still seek bargains and may find they enjoy the dollar-store shopping experience. "I don't think we necessarily come out of a recession and immediately run back to caviar and chocolates."
IBISWorld projects that the dollar-store industry will continue growing at an average of 2.6 percent a year for the next five years.
99 Cents Only
An industry standout is 99 Cents Only Stores, which says its per-store sales of $4.9 million are the highest in the dollar-store industry.
The company has 294 stores, mainly in California, Arizona, Nevada and Texas, and plans to open a dozen more this year. Unlike many dollar stores, the 99 Cents Only stores emphasize fresh food with perishable products such as packaged sliced turkey or a package of Dole romaine hearts, and some organic produce.
The company's employees are trained to "act with a sense of urgency" and handle constant change, such as processing one-time closeout buys, Gold said. Unlike a Walmart or a Costco, which has rigid operating constraints, 99 Cents Only is designed around handling varying stock.
The company does $1.4 billion in sales a year, but "in a lot of ways we act like a very small company without a lot of bureaucracy," Gold said. "Being resourceful is an important core value for our company."
The Chesapeake, Va.-based Dollar Tree Stores chain has around 3,800 locations and sells in bulk from its online arm, dollartree.com.
The company had an estimated $6.6 billion in sales last year, which it attributed in part to adding refrigerated and frozen food at more stores. It gets about half of its revenue from cleaning products, food, and health and beauty items, known as "trip starters" because customers visit the store with those in mind. Many people then make impulse buys when they spot bargains like Easter baskets, china plates or two-for-a-buck greeting cards, company officials have said.
A spokesman for Dollar Tree declined to provide an interview because the company's policy is to avoid media coverage ahead of making certain investor disclosures.
More than a dollar
The nation's two largest discount variety stores, Dollar General and Family Dollar, aren't strictly dollar stores but sell a significant number of items at the $1 price point. Both carry name-brand items, emphasize value prices and convenience, and serve shoppers making "fill-in" trips between visits to supermarkets or big-box stores like Walmart.
Dollar General has 9,800 U.S. stores and plans to open 625 stores this year, said spokeswoman Tawn Earnest.
Family Dollar has roughly 7,100 stores. The company plans to continue expanding in 2012, and recently opened its first California stores.
(Source: The San Diego Union-Tribune, 02/27/12)
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