The dollar store segment is benefitting from current trends in the big-box retail space and national economy, taking this time to expand current store models while experimenting with smaller spaces geared toward customer’s convenience.
This sector is less affected by competition from e-commerce because it competes via convenience and price, according to Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates.
The strength of the dollar store segment during and after the Great Recession highlights the tale of the two Americas trend in retail.
“There are more people in trouble; the middle class is working fewer hours for less pay. There is a real future in a strategy that undersells the competition. That’s why I’m optimistic about this segment. I think the distress in the middle class will continue,” Davidowitz says. “What’s winning is offering the best deal. If it’s cheap and convenient, growth is almost assured.”
Dollar stores are currently in an expansion push. Dollar General plans to build about 1,000 stores in 2017, according to Randy Blankstein, president of national net lease commercial real estate firm The Boulder Group. As of February 3, 2017, Dollar General operated 13,320 stores. Its rival Family Dollar/Dollar Tree opened between 500 and 600 locations in 2016. The retailer operates a total of 14,200 stores under both banners in 48 U.S. states and five Canadian provinces.
“We are still seeing them move to freestanding locations when possible, as opposed to strip centers with two or three anchors,” says Blankstein about the dollar store operators. Dollar stores are looking to expand their market share—tracking smaller markets to open first in and stake a monopoly, Blankstein adds, noting that most of these markets only have space for one dollar store.
As retailers chase the Millennial shopper, dollar store operators are also making sure not to be left behind. Dollar General, for example, is experimenting with two new store concepts: DGX and DG Plus.
The DGX concept entered the testing phase in 2016. At 3,400 sq. ft. (compared to the retailer’s standard 7,300-sq.-ft. store size), the company says on its website that DGX will offer high-volume checkout lanes, to-go goods for immediate consumption and “limited assortment of grocery offerings, pet supplies, candies and snacks, paper products, home cleaning supplies and an expanded health and beauty section.”
The small-format concept is aimed at Millennials in urban markets, Blankstein says, adding that DGX is being done as a “small test rollout at this point, waiting for results before they expand further.” Two locations are set to open this year in Raleigh, N.C. and Nashville, Tenn.
Dollar General began experimenting with DG Plus in 2015. This slightly…