An American retail phenomenon

An American retail phenomenon

Australian Hardware Journal

Bob Vereen explores the concept of the Dollar Store and their phenomenal impact on the American retail landscape

Dollar Tree stores seem the best organised, cleanest and with the sharpest merchandising

America is a land of many contrasts. Its climate ranges from hot to cold, its people from rich to poor. And in retailing, stores range from luxury outlets like Neiman-Marcus to stores whose entire product range sells for $1.00 or less. The equivalent of approximately 52 cents in Australian currency – at the time this magazine went to print.

And it is this latter category of merchants – dollar stores – that seems to be growing at a tremendous rate. Literally, dollar stores are filling up thousands of empty store fronts. So fast are the stores expanding that one has to wonder: where is all this low cost merchandise coming from?

Both Dollar General and Family Dollar, with higher price points, can sell items like paint and paint accessories, some for $1 and others at somewhat higher but still very low prices

Much of it, of course, comes from China, Taiwan and other low-cost sources of merchandise, but much of it also is obtained from domestic retailers seeking to rid themselves of excess out out-of-season stocks, and from manufacturers seeking to unload excess inventory.

Several of these stores are large, publicly owned concerns; most others are small, local chains owned by entrepreneurs. Some are single-unit operations but all focus on serving budget-minded customers who are willing to sacrifice long-lasting quality for low cost in hardlines products as well as soft goods.

The stores also stock consumables such as dry groceries, snacks, soft drinks, etc. They go by many names including 99 Cent Stores; Dollar Tree, Dollar Smart, and dozens of other similar variations.

Dollar General has the highest sales volume of any dollar-store chain, and sells food, housewares/cleaning supplies, a smattering of tools, hardware, etc., and seasonal goods. However store housekeeping is generally rather sloppy…

These stores are not to be confused with two large public chains, Dollar General and Family Dollar Store, which both were born in the southern part of the United States and have now spread into many other parts of the country.

Both Dollar General and Family Dollar Store, while targeting the same low -income market as the genuine dollar stores, carry higher priced merchandise, and rely less on buy-backs and odd-lot sales. But prices and product quality will be considerably cheaper than prices found at a Wal*Mart, Kmart or Target store for such products as jeans, sweatshirts, socks – or tools, paint and hardware.

Dollar General and Family Dollar also get much of their merchandise pre-priced by the manufacturer, with pricing incorporated into the packaging; for example, $3, $5 or $10.

Dollar stores and the other two chains seek second-use retail facilities offering lower rents than prime locations, and often help revitalize declining strip shopping centers. Dollar stores are often small, sometimes as small as 2,000 sq. ft. Dollar General and Family Dollar stores are usually somewhat larger and tend to be in the 5,000-8,000 sq. ft. range.

All offer limited assortments of the kinds of products sold in hardware stores and home centers such as tools, light bulbs, and basic hardware (in the form of padlocks, etc.), flashlights, some sporting goods and basic housewares. Most tools are imported, but some of the other products come from secondary US-based manufacturers. They offer low-income families a convenient, easy-to-shop retail store that will help stretch a limited budget.

Dollar stores, together with Family Dollar and Dollar General, prove once again that the United States is a highly diversified collection of consumers.

Dollar stores everywhere

Family Dollar stores offer a range of low priced basic clothing as well as hardware, housewares and consumables like food

There are three main publicly owned companies in the low priced field with Dollar in their name: Dollar General, Family Dollar and Dollar Tree. Only one, Dollar Tree, limits items to $1 retail sales. The other two sell items for $1, $2, $3 and up to $10. Seldom, if ever, is any product sold towards the $10 mark.

Dollar General did $4.55 billion in sales last year from 5500 stores in 27 states. Stores averaged just over $800,000 in sales. Sales per employee were $131,000. It likely will hit $5 billion this year. December same-store sales were up 8.9%.

Dollar Smart is a local Midwest small chain, typical of entrepreneurs who find there are ample sources of low priced goods and plenty of low income consumers seeking bargains

Family Dollar Stores, which are generally physically somewhat larger units, did $3.8 billion from 4,200 stores. It operates in 39 states. Average sales per store was $900,000 and sales per employee was $210,000. It too had same-store sales gains of over 8%.

Items include work gloves and quite a variety of small tools – all for $1 each

Dollar Tree, like the other two is headquartered in the South, and operates 1,729 stores in 36 states. Over the last several years, it expanded by taking over several smaller chains of dollar stores. It currently operates six distribution centres, has a gross margin of 36%, and did $1.7 billion in sales. Average sales per store was close to $1 million while sales per employee was calculated to be at $250,000.

Just think of pushing almost million piece of merchandise through a store each year! These three chains alone account for more than 11,000 stores selling low priced goods, and there are many other smaller chains and many entrepreneurial independents.