The Explosive Rise Of Dollar Stores

cash strapped shoppers are flocking to dollar stores and it's no wonder supply chain issues record job loss and high inflation means consumers are looking for a good deal dollar stores only sell cheap items typically between one dollar and ten dollars they sell food clothes and household goods and they even carry name brand items you'll find at most big box stores even before the pandemic dollar stores were on the rise 2019 was a record year for store closures but dollar stores were thriving the top three store openings in the us that year were all dollar stores opening 1500 locations collectively but the massive growth of dollar stores hasn't come without criticism opponents argue that discount stores are quickly taking over poor communities where residents have limited access to fresh produce dollar stores do not offer fresh food and they are usually stocked with highly processed items lawmakers in some cities including birmingham oklahoma city and tulsa have passed legislation prohibiting dollar stores from opening within a mile of each other in a lot of ways it's easy to kind of label dollar stores as the villain or the problem in the story and and just by banning them will somehow magically kind of resolve the problem high inflation and supply chain issues are beginning to weigh down on margins in the second quarter of 2021 same store sales at family dollar dollar tree and dollar general dropped significantly from the previous quarters it's just getting more expensive uh to get the goods from uh the manufacturer whether that be in asia or in the united states uh to the store uh and and in some ways it's even hard to get the goods at all despite these hurdles dollar stores are continuing on with their expansion plans into 2022 opening more stores than any other retailer so how did these stores withstand the retail apocalypse a pandemic and widespread criticism to become america's leading retailers before there were dollar stores there were variety stores often called penny or nickel and dime stores dime stores weathered the great depression when many other retailers were going out of business but variety stores really took off in the post-world war ii economy the ben franklin chain was one of the most popular and served as the prototype for many discount stores we know today k.r perry started out with a ben franklin franchise in norfolk virginia in 1953 which built the foundation for what would be known as dollar tree the first dollar general store opened in springfield kentucky on june 1st 1955 with the concept that nothing would be sold for more than one dollar and in 1958 a 21 year old entrepreneur opened the first family dollar in charlotte north carolina dollar stores had their origins um in small towns and in the sort of outer suburbs of cities and the way that that uh dollar general described it originally was we go where they ain't which meant they would go and open in small towns that walmart or target wouldn't go to where there was no large supermarket or large cvs or walgreens or anything like that dollar stores historically targeted low-income shoppers but the turn of the century brought in a new demographic middle and upper middle class consumers with the success of the dollar store format other discount retailers began popping up in 2002 the 5 below chain was founded in philadelphia it remains one of the fastest growing retailers in the u.s selling all of its items for five dollars or under they have really proliferated especially in the years post-recession right so i think we also have to think about dollar stores as a kind of retailer that's really flourished after the 2008 recession and has really kind of been able to benefit very strongly from the market that that recession produced in 2015 dollar tree acquired family dollar for 8.5 billion dollars making it the largest dollar store chain in the u.s at the time by store count one of the reasons that dollar tree bought family dollar through a 2015 acquisition was because they knew that the one dollar price point wasn't going to be able to survive forever and so what they're really trying to do now is they believe that they've built up enough trust with customers that customers think about dollar tree as great value not just one dollar by 2021 dollar general surpassed dollar tree with over 17 000 stores nationwide that's more than walmart and mcdonald's combined in 2020 there were more than 34 thousand dollar stores across the u.s popular chains include dollar tree and family dollar both owned by dollar tree dollar general 99 cents only stores and five below the three biggest chains dollar general dollar tree and family dollar make up almost half of all new store openings in the us the largest discount store in terms of revenue and store count is dollar general one in three stores opened in the u.s in 2020 was a dollar general dollar stores sell a range of products from toiletries to snacks to home decor while many items are generic they often carry name brand items for a cheap price they buy their inventory directly from major manufacturers such as procter and gamble hanes coca-cola and general mills other merchandise comes from liquidation sales in foreign markets so the consumables which would be food candy health and beauty items things like that most of those come from the united states the general merchandise which would be things like wrapping paper and things like that those are generally sourced from abroad and in total if you look at at the merchandise mix about 60 to 65 is domestically sourced 35 to 40 percent is imported mostly from china but some other sorts of sources across asia india and so on dollar stores are outperforming many big box stores net sales at dollar general increased 21.6 in 2020 compared to the year prior far outpacing the 1.9 increase at walmart and according to the analysts they're able to proliferate faster than big box stores because of their small size the average size of a dollar tree store is 10 000 square feet compared to 130 000 square feet at target they can fit in a lot more spaces and um and in a lot different configurations of real estate so that makes it a lot easier for them to expand and because they're smaller it means you can you can put them a lot closer to the customer versus let's say a walmart where most likely you're going to have to get in your car and drive the truth matters in a lot of urban environments that's not always practical for consumers more than 9 300 stores closed their doors in 2019 in what is known as the retail apocalypse as e-commerce giants like amazon continue to grow brick-and-mortar stores across the us are losing traction and closing their doors for good however dollar stores have weathered the storm they are able to withstand the move to digital because shoppers prefer brick and mortar stores for daily essential items a quick trip to the dollar store is still more convenient than online shopping and waiting for shipping the business strategy of most dollar stores is what keeps customers coming back that includes having a consistent store layout putting the most popular items in the back relying on basic everyday items and the perception of low price one dollar for a tube of toothpaste at a dollar store might seem like a good deal but an ounce to ounce comparison proves otherwise today if i want to go buy bounty essentials paper towels i could go to a dollar tree and i can buy one roll for one dollar or i could go to family dollar and i could buy six rolls for five dollars or i could go to walmart and i could buy 30 rolls for 24 now clearly walmart is the best offer but if i am if if i'm living in a household that's constrained with my income right i might not have thirty dollars to spend on on paper towels i but i might have five all right um and so one of the things that that these these businesses have built a strategy around is making products fit prices rather than thinking about kind of what's the best value i can give on a unit basis dollar stores have been expanding for decades experts have attributed it to the growing wealth inequality in america that means more and more people are looking to save money and opting for a good deal but the kovid 19 pandemic has accelerated those trends in 2020 dollar general's same-store sales reached 16 a significant increase from 3.9 and 3.2 percent in 2019 and 2018 respectively opponents argue that this massive growth comes from dollar stores proliferating particularly in low-income communities that don't have easy access to fresh food it's not just that dollar stores don't offer good options is that they make it harder for good options to exist because those those better options whether that's a kind of a local grocer or even a supermarket might not feel like they can compete with dollar stores lawmakers in cities such as birmingham oklahoma city and tulsa have passed legislation prohibiting dollar stores from opening within a mile of each other i think it's important to remember that they are they're more of an accomplice they're they're a symptom not the cause and that um when we've got um communities that are facing real economic problems that are systemic in nature where we've got deep economic segregation both in rural and urban communities that that's when dollar stores appeal appear and if we want to think about um different type of retail options we have to think about what are the kinds of policies that will level the playing field a little bit more economically provide more options in terms of affordable housing and transportation and help people have income to be able to support retailers that are going to have deal with their local populations a little more fairly after receiving a slew of criticism in june 2021 dollar general announced a plan to add fresh produce in 10 000 more locations over the next few years dollar tree started selling fresh produce and meat in its dollar tree plus stores in late 2020 and plans to expand this format to 500 stores by the end of fiscal year 2021 dollar general dollar tree 99 cents only 5 below and family dollar declined to comment for this story the impact of inflation labor shortages and supply chain issues is squeezing the bottom line of merchants all over the u.s and same store sales in the second quarter of 2021 decreased at dollar general family dollar and dollar tree to 4.7 percent 2.1 percent and 0.2 respectively their gross profit margins are down and their operating expenses are higher and and that's particularly problematic for retailers that are operating in extreme value settings like the dollar stores the traditional dollar store model is going extinct dollar tree remains one of the only retailers to sell all of its merchandise for one dollar however the retailer announced in september 2021 it's raising its prices and adding 1.25 and 1.50 price points in some stores and in november 2021 dollar tree announced it will be permanently raising prices by 25 on the majority of its products with walmart increasing its minimum wage to 15 dollar stores may struggle to compete in an economy where workers are scarce dollar tree and family dollar hosted a hiring event in august 2021 where they offered a one thousand dollar sign-on bonus for warehouse employees dollar general is offering cdl drivers a five thousand dollar sign-on bonus for its private fleet even with weighing margins they do have ways of adapting to keep prices low for consumers what they're trying to do is get into prepared foods and um other sort of grocery items which are higher margin higher profit items major expansions into private label is the second strategy but i do think the other point is that they have made a lot of investments in supply chain in store operations and inefficiencies so that that a lot of the things that they were doing before covent are really starting to pay off now for the business through adversity analysts say they see no signs of dollar stores stopping the question is how can they reinvent themselves we would expect to see them continue to add stores at a pretty rapid clip there's not really been a lot of sign that they've run out of room in terms of locations they can put their stores or in their demand we do see them starting to invest more to move upscale to a degree so for example dollar general has a new format called pop shop which is a bit more focused on let's say home and gift items at a slightly higher price point and so you know in addition to trying to capture their current market it does seem they have opportunities to add items and target different segments of the market

Channel: CNBC

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Keywords: CNBC, business, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable news, finance news, money tips, financial news, Stock market news, coronavirus Covid-19, retail, ecommerce, brick-and-mortar, shopping, pandemic, stores, Supply chain issues, job loss, high inflation, discount dollar stores, Dollar General, Dollar Tree, Family Dollar, Retail stores

Id: yQmJpNGclpc

Length: 13min 34sec (814 seconds)

Published: Sun Dec 05 2021