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Dollar Store America

The fastest growing—really, the only growing—segment of retail is dollar stores. What does this say about the American consumer and the future of retail?

We are in the midst of not the much ballyhooed "retail apocalypse," but a real revolution in the way America shops. Online and offline—and indeed, often trying to merge the two channels into one - we see huge companies making huge bets on what the future holds. We see major retailers trying to adapt—quite often on the fly—to the changing ways in which Americans are shopping for and getting all the "stuff" that is necessary, well, to one degree or another, for modern life. From being able to order your groceries—and other stuff—online and pick them up from your local Walmart or Target to being able to order anything and everything - literally everything—from Amazon, there can be no doubt that we are seeing signs that the traditional concept of a "store" is fast-changing as we look ahead to 2020 and beyond. 

There is however one exception. There is one type of retail store that is growing—and growing fast. There is one retail concept that shoppers are voting for—with their feet and with their actual dollars—that they want to go to today. And that form of retail is a traditional,"brick and mortar" store—a physical place that they are flocking to in which to actually shop.  These are the dollar stores. 

Dollar stores are almost an anachronism, a throwback to retail as it used to be. They are a place where you can do much—but most often, not all—of your shopping for your life. They are a place where a shopping cart is almost exclusively a physical cart, with very little thought to offering their goods online (although yes, one can do so!). In short, dollar stores are today perhaps the driving force in retail. And the statistics show that dollar stores - not the usual suspects like Walmart, Target, Costco, etc.— will be the dominant force in American retail over at least the coming decade.


And yes, dollar stores are thriving at a time when traditional retailers - from Sears to JCPenney to Toys"R"Us—have either vanished or are in the process of vanishing. Big box stores continue to struggle and close, leaving huge empty swaths of retail space in their wake. Indeed, entire malls are either failed or failing, leaving both real estate developers and communities grappling with just what do they do with these huge spaces that were once where Americans routinely came to shop. But today, as dollar stores thrive, cities, both large and small alike, are asking if this is a good development, both for their citizens and for their small businesses.  However, that is a bigger issue for another day—one that surely will be much discussed and debated as the dollar store trend only looks to be accelerating.

In a just-released report from eMarketer ("Despite Retail Woes, Dollar Stores Are Thriving"), analyst Lucy Koch has documented the rise of the dollar store. The subtitle to her analysis is key, as it reads "Consumers like a good bargain." And when one thinks about a dollar store, that is probably the first adjective that comes to mind (well, other than "cheap" and maybe some not so complementary words, depending on one's own experience). 

However, there is no doubt that when it comes to the retail sector, the dollar store category is the most dynamic sector of American retailing that we have at the moment. And indeed, some might argue that it is the only dynamic sector we have when it comes to physical, store-based retailing! And the statistics certainly back this up! Take the research highlighted by Ms. Koch in her eMarketer analysis.  Based on data from Coresight Research on the number of actual store locations opened and closed throughout much of the past year, the dollar store category basically ruled retail! Dollar General alone opened some 900 stores! Yes folks, that would be at a clip of almost three every single day of the year! Likewise, Dollar Tree (where yes, everything in 2019 is still a dollar!) opened just over 275 stores under the Dollar Tree brand and under the Family Dollar (where everything is not a dollar!) brand. Off-price retailers dominate the list of store openings, and mighty WalMart, still the "800 pound gorilla" of retail, opened just 90 new stores—1/10th of the number Dollar General opened!


And looking ahead to 2019, the dollar store segment is projected to grow even more robustly. According to eMarketer, both of the dominant national players in this market are planning even higher levels of expansion this year. Dollar Tree has announced that it plans to open over five hundred new stores under its flagship brand, while also renovating approximately a thousand of its Family Dollar locations. Likewise, Dollar General is projecting that it will top its expansion strategy by opening a planned 975 stores in 2019, versus the 900 the company opened in 2018. and open an additional 550 locations. 

All of this expansion means one thing: Americans access to dollar stores will only increase. Already, according to Dollar General's own analysis, fully three-quarters of all Americans live within a five mile radius of one of their locations—this before you add almost a thousand locations this year alone. Much has been made of the seeming bifurcation of the dollar store market, with Dollar General targeting rural locations, and Dollar Tree locating Family Dollar in mostly urban areas. This has led to a larger discussion of how these stores target poor customers and contribute to the "food dessert" phenomenon in both urban and rural areas, both through their selection of mostly processed and packaged foods and their competitive impact on smaller, independent grocery stores. While both chains have made steps toward offering fresher, healthier food alternatives, the proliferation of dollar stores will likely only intensify this debate. 

Dollar stores - the new face of American retailing?

And while the perception is widely held that both dominant companies in this marketspace target poorer, disadvantaged communities, a recent, independent analysis from Inmar Analytics ("Dollars and Sense: Decoding the Dollar Channel Shopper") of customer demographics at all stores in this retail category—Dollar General, Dollar Tree, and Family Dollar—reflect that they attract a diverse range of shoppers from all income groups and increasingly, from those located in the suburbs as the chains expand. And quite importantly, Inmar's research shows that millennials are comprising an ever-larger share dollar store shoppers, showing a preference for them as a quicker, smaller—and more pleasant—shopping alternative to big box, grocery, and super-sized stores. These findings should be worrisome to all competitors to the rising dollar store segment in American retail!

Analysis

Like them or hate them, dollar stores are the future!

And so for good and for bad, dollar stores are here to stay! In fact, they look to become even more prevalent and omnipresent in the years to come. As a strategic management consultant and professor, I know that these are "famous last words" to be spoken or when when it comes to projecting the future of any business today. And as fast as the retail landscape is changing, there is very little that one can look upon with any degree of certainty.

However, I do feel that dollar stores are an important and fast-growing segment for a number of valid reasons. And if convenience is a key driver for the growth of the dollar store segment, then more expansion will only make these stores a more convenient alternative to other shopping choices for consumers. As we look to the future of how America shops, the dollar store will be the one area of retail that will perhaps look much unchanged five, 10, or even 20 years from now (well, except for the roll-through checkouts where "Big Brother" will scan your credit card and all the items in your basket, eliminating even more retail jobs!). And yes, the fact that dollar stores are the only segment of retail that is growing right now—and for the foreseeable future—does creates not just some very serious questions and concerns for how the growth of this retail segment will affect America—and American retailing. However, just as importantly, this megatrend also creates some very serious opportunities for companies— both large and small alike—who will have to compete with the dollar store market going forward. 

And yet, I would remind those who would jump on the "dollar store bandwagon" as the absolute "best bet ever" to succeed that like other segments of history, business history may not repeat itself, but it does indeed rhyme. The American consumer is a fast-changing, hard to predict lot. And just when you think that one particular form of retail and even one particular company is et-up for total market domination, technological, economic, demographic, etc. changes have a way of pushing the wheel of retailing down the road in new, most often unexpected ways. Remember, once Sears was in a dominant market position in the American retail landscape and Amazon once only sold books online. 

We will thus see competitors—both big, established retailers and new, entrepreneurial start-ups—seek to both push-back against—and yes, hop on the current trend of "Dollar Store America." Already, we have seen Walmart and Target move to smaller store formats. We have seen department store giant Kohl's announce that it will team-up with the discount grocer Aldi (a chain that yes, opened 200 stores on its own over the past year, an expansion only topped by the two dollar store giants!) to offer smaller-form stores that will offer a wider mix of merchandise to appeal to shoppers' need for convenience. And do not think that Amazon is sitting idly and cede even a percentage of their growth as dollar stores proliferate and become even greater competition for the online giant. the company is rapidly expanding its offerings of private label goods, offering the convenience of home delivery with value.

It seems like such a cliché to conclude with the reminder that the one sure thing is change. However, in the case of the rise of the dollar store, the saying certainly will hold true. The growth of dollar stores is a trend that seems to meet the needs of American consumers at the moment, and the expansion of these major dollar store chains will mean that they will play a bigger and bigger role in the U.S. retail market in the years to come. 

And yet, this is not the final step in the evolution of the American retail landscape. Just as shoppers have voted with their feet and their money to fuel today's growth in the dollar store market, there will be rough days ahead for the major dollar store players as they work to manage expansion - and investor expectations. And just last week, Dollar Tree has been urged by an activist investor to break its model and sell items for more than $1 and to perhaps abandon, rather than seek to remodel and rejuvenate, its aging Family Dollar stores. 

History does show that large retailers—from Kmart and Sears to even Walmart - do go through turbulence, maybe not fatal—but challenging—levels of turbulence, as they attempt to grow in size and keep-up with new, emerging competitors. The change analogy is apt in that the larger these chains grow in size, the harder it is to make any level of change, much like turning a cruise ship versus a speedboat! And thus, these chains will be challenged to make the boring, "nuts and bolts" investments and moves in things like their distribution networks and their information technology systems to support seemingly larger and larger footprints. 

Finally, as channels converge, with Amazon opening its own physical stores, can—and should—these dollar store giants develop an effective e-commerce channel, both to compete with its online competition and to serve even a broader potential customer base and yes, sell even more to its present customers?  

One thing is indeed certain: Dollar stores will be an ever-larger part of the future of American shopping for the foreseeable future. And how—and if— they can effectively manage their own growth, respond to competitors' moves, and roll with the changes that will invariably come in the way Americans will buy all their "stuff" in the future—will go a long way to determining quite literally the course and form of the American retail landscape. Buckle up—it's going to be an interesting decade or more ahead! 

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