Dollar…and Change

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The dollar store has always played a fascinating role in the American retailing business. Often the only place to shop for many items in large parts of still-rural America, stores like Family Dollar and Dollar General are increasingly migrating into more suburban and even urban neighborhoods. Offering an ever-changing mix of durables and consumables, they have provided economically-pressed, credit challenged consumers a convenient place to shop in cash when mainstream discount stores like Walmart and Target are often out of their price range.

Legacy dollar stores are taking advantage of the times to pick up market share and their aim, as it’s been in similar tough economies, will be to retain these customers when things get better. But they are also being challenged by a new wave of retailers that fall under the general “dollar” format but offer vastly different shopping assortments.

As such, they are a great indicator of the state of the economy, surging in tough times and remarkably holding onto customers even when the economy picks up. So, it’s no wonder that legacy dollar-format retailers are surging right now, opening new locations at record numbers while they push their pricing policies ever higher. It also explains the new wave of dollar-type stores, often imports from Asia like Daiso and Miniso, that are rapidly expanding their American footprints while redefining what a dollar store is.

There’s no question that change is in the air for dollar retailing.

Old Money

Dollar General and Family Dollar are arguably the motherships of the dollar-format universe. They operate more stores collectively – not to mention individually – than any other retail format in the country and they continue to expand those footprints at insane paces.

Dollar General currently operates just over 18,000 locations but it is far from done. In announcing solid earnings at the start of December it said it was on track to open 1,050 more stores over the next 15 months plus 2,000 remodels and about 120 store relocations. It’s also expanding into Mexico with a plan to have 35 stores in the country by the end of its fiscal 2023 in February.

Across the highway, Family Dollar (owned by Dollar Tree, which has a somewhat different merchandising model) is on a similar track. Although with about 8,000 locations, it is significantly smaller than its prime competitor and has struggled to get its merchandising strategy right, recently signaling it was lowering some prices to be more competitive. It is on track to open about 400 new locations this fiscal year as well as renovate about 800 existing stores, reflecting the fact that its store base is in worse shape than General’s outlets. But the vast majority of the new Family stores will be combo stores, joining Family Dollar and Dollar Tree formats under one roof, taking advantage of the two different brands.

Dollar Tree, also with about 8,000 locations, is focused on these combo stores but also on its move to push its prices to the $1.25 level…and even higher with its $3- and $5- Plus assortments in some stores. Unlike Family and General stores, which focus on basics and consumables, Dollar Tree stores have more of a gift, party, and impulse assortment. It claims it has not met resistance to the price increases, which it says allows it to carry some products that could no longer meet the $1 threshold.

Both stores have said they are gaining customers from unlikely places, namely more well-off shoppers trading down. On a recent call with analysts, Dollar General CEO Todd Vasos said it was clear they were attracting better shoppers “which we believe reflects more consumers choosing Dollar General as they seek value.” His counterpart at Family Dollar, Mike Witynski, made similar comments, saying he was seeing new customers with household incomes above $80,000 as shoppers were “feeling pressure like they never have before.”

Clearly the legacy dollar stores are taking advantage of the times to pick up market share and their aim, as it’s been in similar tough economies, will be to retain these customers when things get better. But they are also being challenged by a new wave of retailers that fall under the general “dollar” format but offer vastly different shopping assortments.

New Money

Perhaps the retailer that woke up the dollar channel first was Five Below. Founded in 2002, the chain now has about 1,000 stores but just upped its goal to go to 3,500 locations (versus the 2,500 of earlier statements). It has opened 100 stores just this year and has reported stronger financial results than some other dollar-format players.

Of course, Five Below is a niche format, concentrating on the teen and tween customer and, as its name implies, carrying merchandise priced up to $5. That said, it is experimenting with in-store sections above that level, branded Five Beyond. It has clearly gotten the attention of others, both established companies and those outside the country.

The one attracting the most attention is Popshelf, a startup from Dollar General that takes some inspiration from Five Below, but also from Dollar Tree, convenience stores and even off-price home retailers like HomeGoods and Christmas Tree Shops. Just two years old, it already has more than 100 locations and the parent company says it plans 1,000 locations by the end of its fiscal 2025 year.

Popshelf stores run about the same size as conventional dollar locations and keep prices generally below $5, yet they have broader assortments of home and gift merchandise as well as food, party, beauty, and household cleaning products in a cleverly merchandised, almost whimsical format. While it shares some products with Dollar General, much of its offerings are private label developed just for this new brand. “During the past two years, Popshelf continues to positively resonate with customers through our fun shopping experience, on-trend merchandise and relevant price points,” Emily Taylor, Dollar General’s executive vice president and chief merchandising officer recently said.

Foreign Money

And then there’s the Asian invasion. Two chains – Daiso from Japan and Miniso from China – have each moved into the American market over the past decade and each has ambitious plans for future expansion. Both stores take the usual dollar format of household basics, consumables like food and household cleaning products and mix them with some toys, party goods and kitchenware. Daiso bills itself as the “100-yen” (about 75 cents at current exchange rates) store, even if much of its merchandise is above that, usually capping at around $5. Miniso goes little higher, billing itself as the “10 N’ Under” chain with prices topping out at $10.

Daiso has in fact been in the American market since 2005 but it initially stuck to the West Coast with its larger Asian population. It now has about 80 stores in the country. The Japan Times recently reported that the chain has plans for up to 1,000 American locations, including an additional 30 stores over the next year. It currently operates more than 2,300 locations in 25 countries and locations.

Miniso has more than 5,000 stores around the world, the vast majority of which are in China. It arrived in the U.S. five years ago and had 53 stores in the country at the end of last year, including its first expansion to East Coast with a location in Manhattan’s Soho neighborhood. It has not publicly announced its further expansion plans, which perhaps were put on hold during the pandemic. Nonetheless, its CEO Andrew Xie recently said,\”Despite the pandemic, Miniso has maintained a strong performance and has exciting plans to open in new markets across North America.”

What is exciting about these two imports is that they both go at the heart of traditional dollar store strengths but manage to add products that would never be found at those stores. Each puts a different twist on the model, but in doing so proves that there is quite a bit of elasticity in the dollar format. This seems to be especially true in today’s economic downturn.

A Dollar for Your Thoughts

The entire dollar category is clearly in the throes of significant upheaval with legacy players changing their models and new formats emerging to contest their dominance. And coming from other fronts are giant drug chains, off-pricers and even deep discounters like Ollie’s that are trying to get to this shopper.

If you live in a big city like New York or Los Angeles, you may not understand how firmly ingrained dollar stores are in the American culture and shopping scene. But take a ride outside of urban center and the landscape changes dramatically. With the economy teetering on recession and shoppers looking for trade-down alternatives, those dollar bills are flowing like crazy across America.



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