Dollar Stores Are Big Bucks In The US

Dollar stores are big business in the United States and are encroaching on the territory of conventional hardware stores…

Americans seem obsessed with bargain hunting, and nothing typifies this national characteristic more than the growth of “dollar stores” and the more recent growth of this single-price concept into regular retailing.

Dollar Tree is another publicly- owned chain, occupying larger locations in more prime areas

What is a dollar store? The purest version is one that sells all items for one dollar, nothing higher, but the term also includes two large chains, Dollar General and Family Dollar, which sell products at various prices, costing as much as $10, though most items are priced under $5. Counting three publicly-owned chains, there are more than 15,000 units now, and that number could be much higher, perhaps even double, inasmuch as many entrepreneurs have opened single-units, and there are many very small chains which escape notice in any industry projection.

Low pricing of basics, as stressed by dollar stores, dates back more than 40 years, but the explosion of new units in recent years testifies to the concept’s appeal. Family Dollar Stores began 44 years ago and now has 5,300 units, but it opened 2,000 of those within the last five years. Dollar General, another pioneer, now has more than 7,000 units, while Dollar Tree, the third of the big publicly-owned companies, has several thousand units.

What makes this such an interesting phenomenon today, is that other retailers are setting up “dollar zones” in their own stores to capture the consumer’s interest in these low-priced bargain buys.

Deals is owned by Super Value, a major food wholesaler and supplier of dollar merchandise to its regular customers

Wal*Mart, already the world’s largest retailer, is testing the concept in a number of stores, and will roll it out chainwide if results meet expectations. Another large chain, Albertsons, one of the leading US supermarkets, has now added dollar zones into all of its 2,500 stores, after testing the concept for 12 months in a limited number of stores.

Super Value, one of the nation’s largest wholesalers in the food industry, operates its own chain of dollar stores, called Deals, and is also supplying other small chains and independents operating under a dollar store philosophy.

Some of the items being sold for one dollar (or for slightly more in stores such as Dollar General and Family Dollar) are those found in hardware stores and home centres, though brand names and quality levels are far different. However, each item purchased in one of these bargain-buyers’ paradises is one less sale of a similar item in a conventional hardware store or home centre. What kinds of items do these stores sell which conventional hardware stores stock?

Much of the merchandise, of course, is imported from China and other low-cost producers, but not all. While the quality is not sufficient for hard, long time use, it is sufficient for the occasional user, and each hammer, light bulb, drain cleaner or electrical switch sold in one of these stores, is one less to be sold by Home Depot or a neighborhood hardware store. Another interesting facet of this phenomenon, just recently announced, is that 25% of all American households with incomes greater than $100,000, have shopped in one of these types of stores within the past six months. With income to spare, these households shop at these stores for the excitement, variety and thrill of finding something useful AND inexpensive. Perhaps even more impressive, is research disclosing that 80% of all consumers state that dollar stores are a regular shopping destination.

Dollar General operates more than 7,000 small units like this

That same research organization estimated the dollar store market to be more than $US 40 billion, also conservative since it does not include the new “dollar zone” concepts being tried by many conventional retailers. Between them, the top three publicly-owned chains are expected to generate $16.3 billion in sales in 2004. Other stores testing or who have already installed “dollar zone” segments are Target, CVS (a major drug chain), and Giant Eagle, another supermarket chain. More recently, these stores have increased the amount of space given to food, recognizing the appeal of consumables in building repeat store traffic. Their success with this category undoubtedly underlies the growing development of “dollar zones” in conventional supermarkets and general merchandise stores. Besides bargains, what is the appeal of these stores? They are small, and located to be convenience stores. Typically, they are 5,000 sq ft and up, and only one chain, 99ç Stores, operates larger units as part of its strategy. Its stores are 15,000 sq ft or thereabouts. Many times, they occupy the facilities of another larger store, which means their occupancy costs are much lower. They often locate close to lower and middle-income consumers, though that is not always the case, as management discovers more affluent shoppers are checking them out for bargains on a regular basis. Their assortment of basics in the hardware/home centre category is very limited, but naturally includes all the best-sellers so they can chisel away at sales in conventional outlets—ie light bulbs, batteries, etc.

The true dollar stores are undoubtedly fun to shop at. One can fill a shopping cart with a lot of merchandise and get out of the store without spending as much as $20.

By Bob Vereen, Hardware Journal’s US Correspondent.