Dollar Stores On Fire As Even Better Off Americans Trade Down

Discussion in 'Economics' started by ByLoSellHi, May 1, 2009.


    Don’t Ask. You Can Afford It.

    Susan Fallon and her daughter Paxton at the Dollar General in East Northport, N.Y. “You can spend a lot of money that you don’t mean to,” she said.

    Published: May 1, 2009

    Wal-Mart may have become the premier place to shop for Americans struggling through a severe recession, but the giant chain has competition nipping at its heels.

    The nation’s dollar stores, those once-dowdy chains that lured shoppers by selling some or all of their merchandise for $1, are suddenly hot. They are busily opening new stores, outfitting existing stores with refrigerators and freezers, and sprucing up their aisles with better lighting, fresh paint and new signs.

    And while most big retail chains are closing stores and radically cutting back on new outlets, the dollar chains are planning to open hundreds of stores this year in some of the best locations to which they have ever had access.

    Dollar stores have long had a reputation for being down-at-the-heels places to buy cheap, generic goods. While keeping their low prices, they are revamping their image and climbing the respectability ladder — in some cases into the Fortune 500.

    Dollar General, long part of that select club of the 500 biggest American companies, appears on this year’s list at No. 259, up 15 places from last year. And Dollar Tree landed on the list for the first time, at No. 499. Those rankings are a far cry from Wal-Mart Stores, which holds the No. 2 position behind Exxon Mobil, but some dollar chains these days are growing faster than Wal-Mart.

    “When you think about the dirty dark days of dollar stores,” said Joshua Braverman, a spokesman for Family Dollar, “I think we’ve come a really long way.”

    Richard Russell, a health care worker for an assisted-living community in East Northport, N.Y., said that even people who can afford to pay $5,000 a month for their parents to reside in the community are shopping at the local dollar store.

    “You go to the supermarket and you buy eggs and milk, and your money’s shot,” Mr. Russell said recently as he pulled a box of Kraft macaroni and cheese, 85 cents, off the shelf.

    The selection of merchandise at dollar stores is nowhere near that of Wal-Mart, of course. But Mr. Russell is among the consumers who said they liked shopping in a smaller store where the staff was easily accessible and the aisles tended to be less crowded.

    Of the nation’s three major self-described dollar chains, Family Dollar and Dollar General sell many items for about $1 along with other merchandise that costs more. Over the last year, another chain, Dollar Tree, tried selling items in some stores for more than $1, but sales were not impressive enough to keep the experiment alive. Today, Dollar Tree is back to being a dollar purist.

    What the three companies have in common is strong sales growth in their most recent reporting periods — a feat in this economy, where most chains are posting declines.

    For the three months ending Feb. 28, sales at Family Dollar stores open at least a year — a measure of retail health known as same-store sales — increased 6.4 percent compared with last year. Customer traffic, as well as the average amount of money spent at the checkout counter at Family Dollar, which operates more than 6,600 stores, also increased.

    Same-store sales for the three months ending Jan. 31 increased 2.2 percent at Dollar Tree, which has more than 3,600 stores. Timothy J. Reid, vice president of investor relations for Dollar Tree, said the company had a 3.7 percent increase in the number of transactions in 2008 compared with the previous year.

    At Dollar General, which operates more than 8,400 stores, same-store sales for the three months ending Jan. 30 were up 9.4 percent.

    Stacey Widlitz, a retailing analyst with Pali Research, summarized the dollar-store success story: “They’re killing it because consumers are trading down.”

    As a result, the chains are opening more stores and negotiating less expensive rents in better shopping centers. After all, landlords are hungry for healthy retailers to take over the empty spaces left behind by bankrupt and ailing chains.

    “We have seen a softening of the market when it comes to real estate, and certainly when you’re the big dog and doing well, people want to come to you,” said Mr. Braverman of Family Dollar. “We plan to open 200 stores this year.”

    Dollar Tree plans to open 235 new stores and relocate 90 existing stores. Dollar General will open 450 new stores and remodel or relocate about 400 existing stores.

    To capitalize on the down economy, the chains are offering more groceries and household necessities — and giving those items more prominence in their stores.

    “All these guys are seeing more traffic and new customers than they’ve seen in the past,” said Joseph Feldman, a retailing analyst with the Telsey Advisory Group. “It’s clear to me that it’s an attempt to capture and retain the customers that they are getting.”

    Some chains began making their food business a priority well before the recession hit — installing refrigerators and freezers so they could take market share from grocery stores; adding more name brands; and trying to make their stores more appealing by repainting them, improving the lighting and widening the aisles.

    While most dollar store and closeout retailers said food did not make up the bulk of their sales, they said it has become an increasingly important part of their business. In its 2008 fiscal year, Dollar Tree added freezers and coolers to 135 stores. This year, at least 150 more stores will receive them.

    Mr. Braverman of Family Dollar said the company had spent the last few years positioning itself “for an economy such as this” by adding more brands and a wider selection of salad dressings, pastas and sauces. Last month the chain began carrying Double Stuf Oreo cookies. Family Dollar also began rearranging merchandise to make its stores easier to shop. “Are the plates near the food?” Mr. Braverman said. “No? Well, let’s put them over there.”

    More dollar stores are also accepting food stamps, which is helping drive sales. Dollar Tree, for instance, accepts food stamps in 2,200 of its stores today, up from 1,154 stores last year. The company expects that number to increase yet again as more of its stores receive refrigerators and freezers.

    Low prices are not the only reason consumers are flocking to dollar stores, though.

    Some go because they can get a shopping fix without doing too much damage to their wallets. But they have to be careful. “You can spend a lot of money that you don’t mean to,” said Susan Fallon, during a recent trip to Family Dollar in East Northport. A teacher and single mother of two children ages 6 and 9, she has been trying to save money by cutting back on driving, dining out, eating meat and drinking soda.

    Lisa DeFranco, a seventh-grade teaching assistant, agreed. But like many consumers she likes the convenience of shopping at a local store; the quieter, less crowded aisles; and the personal attention — something that is often lacking at big-box discounters.

    “The man who works here is such a nice guy,” Ms. DeFranco said. “They always offer to help you.”

    Mr. Braverman of Family Dollar said the small-town feel of the stores appealed to many customers. And he noted another boon: “You don’t have to navigate the big-box parking lot.”