Cents and Sensibility
Behind the Dollar- Store
Boom: Nation of Bargain
Hunters Not Only for Poorer
Families, Chains Outpace Wal-Mart; New Threat to Retailers A $50 Gift Amid $1
Cereals
By ANN ZIMMERMAN
DALLAS-To understand the boom in dollar stores, retailers that offer ultra-cheap prices on a limited selection of soaps, snacks and other domestic products, meet Liz Akop.
The stay-at-home mom doesn't need to stretch her budget by shopping at dollar stores but she visits a Dollar Tree in northwest Dallas about once a month. On a recent Sunday, she was scouring the store for materials to wrap a birthday present for her son's private-school classmate.
"You can get great deals here on holiday decorations, party favors, cooking utensils," says Ms. Akop, 42 years old, standing by a display of wine glasses decorated with tiny gold snowflakes. "Every time I come, I never leave without dropping $30 to $40."
Dollar stores are hot, and not just because of the financial strains caused by the U.S.'s uneven economic recovery. While they still rely on low-income house holds for the majority of sales, some dollar-store companies are moving up the retail food chain. In particular, they are appealing to consumers from all income levels who want discount prices for everyday household goods. The success of the modern five-and-dime is the latest sign the U.S. has become a nation of bargain hunters, a shift that's causing headaches for some traditional retailers.
Dollar General Corp., the largest dollar-store chain in the U.S., says households with annual incomes of more than $50,000 represent its fastest-growing market. The number of such households who shopped at its stores between 2001 and 2004 increased 27%. By contrast, the number of households with incomes below $50,000 increased 14%. Dollar General declined to say what portion of sales those two groups represented.
According to a recent study from Boston Consulting Group, consumers are dividing shopping into two categories: big-ticket items such as cars and televisions, on which they are willing to splurge; and everyday items, such as canned food and over-the-counter health remedies, for which they won't pay more than discount prices.
As a result, a quarter of Americans with household incomes in excess of $100,000 shopped at a dollar store at least once in the past six months, according to Retail Forward, a Columbus, Ohio-based marketing and consulting firm.
"Poor people need low prices. Wealthy people love low prices," says Todd Hale, a senior vice president at market information company ACNielsen Corp.
The lure of the decades-old dollar stores is putting pressure on major retailers who are also grappling with the effect of higher gas prices and stagnant wages. When Wal-Mart Stores Inc. recently backed away from its traditionally steep discounts the day after Thanksgiving, it quickly felt the backlash from stingy consumers and reversed course.
Retailers including Target Corp., Albertson’s Inc. and Kroger Co. have responded to the dollar-store phenomenon by installing aisles in stores devoted to items costing $1.
"As we did our research, it became very clear to us that it was a consumer trend that we could not ignore," said Albertson’s Chief Executive Larry Johnston in a June conference call with investors.
It's hard to know how long dollar stores will be able to extend their appeal.
Dollar General ran into trouble with a late-1990s accounting scandal that led the company to restate earnings for three consecutive years. Dollar stores have recently seen margins slip because of the impact of high gas prices. Competition from other retailers, including the powerful Wal-Mart, is also likely to increase.
Dollar Stores, usually located in strip malls, have few frills. Most feature linoleum-tile flooring, fluorescent lighting and metal shelves. Historically, dollar stores were the dumping ground for a hodgepodge of leftover merchandise.
Some have recently expanded into more exotic goods, including frozen shrimp and brand-name underwear.
Dollar Store Services
4505 West Hacienda Ave., Suite I
Las Vegas, NV 89118
1-800-829-2915
FAX: 1-702-382-8454
TEL: 1-702-382-8444
Email: sales@dollarstoreservices.com
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