Will Dollar Stores Rule the Retail World?

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Rick Wilking / REUTERS

Shoppers enter a Dollar Tree store in Arvada, Colorado on Feb. 25, 2009.

Last Monday, Dollar General, the U.S.’s largest dollar-store chain, posted better-than-expected profits, helping boost the company’s stock, which is up 15% year to date. And earlier this year, it announced plans to open its 11,000th store by the end of the 2013 — an impressive figure for a discount retailer. The only other companies to boast store counts that high are fast-food chains like McDonald’s and Subway.

And Dollar General isn’t the only dollar chain to have had success in recent years. Competitors Dollar Tree and Family Dollar have also experienced significant growth in revenue since the 2008 recession, when many consumers began shopping at discount chains for everyday items like cleaning supplies, toiletries and groceries. Another boon to these sorts of discount chains has been government safety-net programs like food stamps, which prevented those already shopping at dollar stores from being shut out altogether from being able to afford necessities. According to Morningstar analyst Michael Keara, 40% of dollar-store-sector customers rely on some form of government assistance.

(MORE: Are Consumers Getting Tired of Fast Fashion?)

Meanwhile, Walmart — America’s biggest and most successful discount retailer — has not been performing as well since the recession, and is off to a slow start in 2013. So why have dollar stores been able to capitalize on the weak economy while Walmart hasn’t? There are a few reasons:

  1. Walmart was already starting from a position of dominance. When you’re the biggest retailer in the U.S., it’s much more difficult to achieve steady sales growth than if you’re an outfit like Dollar General, which was losing money as recently as 2007.
  2. Dollar stores had the inside track in the race for urban shoppers. Walmart’s bread and butter are rural and ex-urban shoppers who can access its massive supercenters with relative ease. Penetrating the urban market has proved more difficult for the simple reason that the supercenter model cannot easily be reproduced in places with less space. Walmart is trying to remedy this with its push to open more smaller “neighborhood centers,” but it has some catching up to do in order to reach the sort of urban penetration that dollar stores have.
  3. Dollar stores are getting away with higher prices. Though dollar stores are known to sell off-brand items at low prices, overall dollar stores are selling their merchandise at higher margins than Walmart. That means that either dollar stores are buying their goods for less than Walmart, or that dollar stores are getting away with higher prices on a pound-for-pound basis. And given Walmart’s legendary purchasing power and supply-chain management, it’s highly unlikely that any of the major dollar-stores chains can consistently source their merchandise more cheaply. What’s more likely is that dollar stores have successfully masked their higher prices by selling items in smaller portions and by strategically discounting certain items.

With these factors in mind, it’s difficult to see dollar stores maintaining their current growth rates for much longer. Walmart recently announced a plan to ramp up its efforts to build smaller Neighborhood Market outlets, which will be on average about one-third the size of its traditional supercenters. These stores will be better positioned to attract customers in urban centers where Walmart has lagged the competition. The retail giant has also said it will be instituting $6 billion in price cuts over the next several years, which will make it more difficult for dollar chains to maintain their market share and high margins at the same time.

(MORE: Where Dollar Stores Are Still Not Welcome)

Walmart has also made several unforced errors in the past couple of years, from limiting its product selection to allegedly understaffing many of its supercenters. But it’s hard to imagine that a company with Walmart’s track record will continue to flounder for very long. Dollar stores have exposed and capitalized on some chinks in Walmart’s armor over the past few years, but the world’s biggest retailer has begun to address those weaknesses, and will no longer be taking the fight lying down.

93 comments
toolbox_timmy
toolbox_timmy

@ToolBoxSolution Over 50% of Dollarama sales come from items priced above $1. Appears consumers are more inclined to purchase a smaller size

eaj2010
eaj2010

I hate when people use the phrase "dollar store" generically. Family Dollar/Dollar General have varying prices and Dollar Tree only has prices $1 or less. 

I personally love to shop at Dollar Tree. You can find really good deals, the main thing I buy is toiletries and some food items. I have found things that sell for $10 dollars at other stores for a $1 at dollar tree, like a USB port plug in for your vehicle.  But you do have to know what you already pay one example is a 4 pack of toilet paper for $1 at Dollar Tree when you can get a 6 pack at Walmart for like 93 cents, they are the same quality/amount of toilet paper also. 

hummingbird
hummingbird

More people use the dollar stores than I realized. A friend told me that I could get blinds at the cheapest price there. Although I doubted this, I still checked it out. He was wrong! The price for blinds at National Wholesale Liquidator was cheaper than in the dollar stores. So yeah, he found out that dollar stores don't have the best prices.

jdlasica
jdlasica

@TIME Copper or Nickel era, maybe. Golden age? Nah.

I_Tiresias
I_Tiresias

@TIME @TIMEBusiness Yes, ppl are too poor to go anywhere else, so they head to dollar stores in hope of value. Low-paying jobs abound.

SteveM.Russo
SteveM.Russo

FAMILY DOLLAR and DOLLAR GENERAL are not "Dollar Stores" (regardless of the names), but are in fact the modern successor to Woolworths, Grants,S.S.Kresge and the classic "5 & 10" stores  - Goods prices between $1 to $20 or so, and carry name brands, not off brands as the stores like "Dollar Tree" do. 

czydiamond
czydiamond

Dollar Stores get most of their stuff from the great amount of merchandise which remains unsold only because of less effective marketing, not quality.  The stuff is unsold and they would rather sell it to Dollar at a loss than throw it away.  You often cannot find the same thing when you come back, but these days at Walmart half their stuff is out of stock. .

Ain Riz
Ain Riz

Cost leadership I guess

paulswansen
paulswansen

@shashib also that the Dollar Stores also have products people wish to purchase.

CrossWinds
CrossWinds

A dollar is all we will have left...........

...........Revelation 6:6 .............
6 And I heard what seemed to be a voice from the midst of the four living creatures, saying, A quart of wheat for a denarius [a whole day’s wages], and three quarts of barley for a denarius.........

Mary Anne D'Agata
Mary Anne D'Agata

Wally's is not a bargain, ever, they make profits like any other store even the dollar stores. Their biggest flaw is subsidizing products and goods the buying public does not want, they are so huge they can't adapt easy to current trends, market garbage, hire yes men managers that cannot think outside corporate coloring lines to boost their individual stores profitability, they operate from the top down and do not attract innovators to run operations. From food stuffs in grocery to clothing on the shelve, corporate panders to a lower income group that steals more than they actually pay for thinking they will make it up in volume, truth is they throw away more in waste than they should, prices rise to compensate and in the end perception of the chain as a poor inequitable employer that sells disposable goods from China is never addressed. Why buy from that store when smaller stores can adapt and empower employees to help customers find the right products and services?

josec
josec

Absolutely !!!!!!!!!! Kresge stores woolworths etc etc started as 5 and 10 cent stores the equivalent of Dollar Stores today

Deanna Kelly
Deanna Kelly

I have boycotted Walmart for nearly a year because of their unfair labor practices, and also because their prices are not cheap. They utlitize what borders on false advertising to make people think they are cheaper than other stores.

Ayman Freeman
Ayman Freeman

I boycotted Walmart ever since the Bangladesh factory fire disaster. Will consider patronizing them again if they start doing the right things.

carocc
carocc

Just because there are many "Dollar Tree" stores and they seem to be multiplying rapidly is hardly a reason to even remotely surmise the genre will somehow "rule the retail world".  There is a lot of retail shopping in the world beyond the reach of the dollar store genre, and sooner or later it is going to become much more difficult to staff such outlets at the wages and conditions being foisted on those working at dollar store genre locations.


TrajanSaldana
TrajanSaldana

by the way...I can't speak for other areas of the country but the Dollar Generals in my area are NOT "real" dollar stores, by no means

TrajanSaldana
TrajanSaldana

this was an article about Walmart, not dollar stores

jenwilliamsintl
jenwilliamsintl

I LOVE THE DOLLAR TREE!!!  I could pay more, but why?

dntjnv
dntjnv

@TIME @TIMEBusiness Actually media is busy in serving many kooked meals to/by so called polcontracters/bmen. Hw cn 1 ecpt2coverAAP event

jamie25chin
jamie25chin

A store that hasn't been mentioned in this convo is the 99¢ Only Stores, primarily because they are only located in the west / southwest. They have produce - yes PRODUCE and everything is just $1 - sometimes less. Who can afford not to shop here these days? It's no wonder they are soaring at the moment - and I'm a college educated woman who just refuses to spend $200 at my local grocery store every week just to feed my family. I hope they expand nationwide soon, they beat Dollar Tree and the others by a long shot!

hejjet
hejjet

@TIME @TIMEBusiness I don't like nor shop in WalMart but Dollar stores are gimmicks to make millions on junk. Wasted resources.

r_hernandez11
r_hernandez11

@TIME @TIMEBusiness Easy! Dollar stores sell items for a dollar, & wal-mart has high prices, they advertise cheap, but it's all a facade.

hejjet
hejjet

@TIME they sell junk that can be lived without. Dollar a budget gimmick to go after poor knowing their limit while making millions

heyyoubear
heyyoubear

Dollar Stores were GREAT in the 90's when the majority of their merchandise was 'closeouts' and Overstock from other stores and NEVER meant to be sold for a dollar, now the stuff is specially made for that price point...and it shows

imabooper
imabooper

@carocc 

I worked at DT for three years; $8/hour + 15% off stock prices.

GO DT stock!!!

imabooper
imabooper

@TrajanSaldana 

Actually, it's an article about how DT is going to whip WM's a$$ in the retail market!!!

heyyoubear
heyyoubear

@hejjet @TIME I kinda like to buy hand soap, toilet paper and household cleaners....but that is just me.