While it may feel as though the brick-and-mortar store era is coming to an end, there is a shining light for at least one physical retail channel. Dollar stores are now the fastest-growing type of retail store in the country. A consumer insight report by Nielsen shows that this segment of the market grew over 9 percent in 2015.
Surprisingly well-heeled demographic
The typical dollar store customer has changed over the past decade. Low-income families are no longer the main client base. In fact, those who make less than $30K a year are not responsible for the recent success of these retailers. More-affluent customers who earn $70K a year or more are making the largest impact in the dollar store sector and comprise over 22 percent of the customer base, Rick Dreiling of Dollar General told The New York Times.
Competition with grocery stores
Nielsen’s most recent global retail report suggests that more than two-thirds of Americans “enjoy the time spent finding bargains.” Dollar stores have capitalized on this by responding to the customer’s desire for a one-stop shop and increasing their refrigerated and frozen food sections. In fact, Dollar Tree indicated the addition of coolers and freezers to 665 of its stores was a highlight of the 2015 fiscal year. And this change seems to be paying off with America’s most influential generation. The National Retail Federation reports that 38 percent of millennial shoppers buy their groceries at dollar stores.
Widespread industry impact
The increased popularity of dollar store brands has allowed the chains to undergo rapid expansion. Dollar Tree, for example, acquired Family Dollar in 2015, adding nearly 9,000 stores, increasing their annual net sales by 80.2 percent.
Mass market retailers, such as Target, are responding to the popularity of dollar stores by imitating the format on a small scale within their stores. Some retailers are also responding by launching their own private-label brands. Nielsen reports that 70 percent of households agree that these store-brand products are a good alternative to the more expensive name-brand options. And retailers have seen a nice payoff from this investment: Store brands have increased their share of store sales by 1 percent in the last four years.
Reporter’s Takeaway
• Ask dollar store owners what they feel has changed about the business over time. Find out if there is a new demographic shopping in their stores, if different merchandise is selling, and if their corporate messages seem to have changed.
• If a new dollar store has opened in your area, find out what factors impacted the company’s decision to locate there.
• Ask around to see how shopper attitudes toward dollar stores vary generationally and which type of customer in your area is most likely to shop at a dollar store.
