Christina Franklin loves dollar stores with a passion that nearly transcends shopping.
“I’d live here if I could,” the Subway assistant manager said during a recent jaunt to a Family Dollar in east Denver. “I just love shopping here.”
They’ve been around since the 1950s. But dollar stores have gained new prominence and popularity in recent years.
If there’s a silver lining to the nation’s economic doldrums, it’s that millions of consumers have learned to ignore the supposed stigma of shopping in lower-rent locations with bare-bones fixtures and fewer brand-name selections.
That’s the trade-off for low prices and convenience. A fringe benefit is the neighborly feel of the stores.
“It’s cheaper to come here,” Franklin said. “And I think it’s more friendly than Walmart.”
Dollar stores traditionally have targeted households with family incomes of less than $40,000. The demographic has skewed more affluent in recent years as higher-income shoppers seek discounts to offset economic stress from job losses or stagnant wages.
As a result, several chains have begun expanding their products lines and revamping stores in an effort to maintain that clientele as economic conditions improve.
Dollar Tree has stuck with the sector’s traditional orientation of selling items that cost no more than $1. Other stores now offer a broader selection at prices as high as $10 or $20 for larger goods and small appliances such as toasters and irons.
A national survey last year by ShopperScape showed that 73 percent of Americans will continue recession-induced behavioral changes such as spending less on retail purchases, even post-recovery.
Tax-return preparer Nakita Devore of Denver has become a loyal customer of dollar stores and said she has no plans to shift her buying patterns, regardless of economic improvement.
“Just about everything is cheaper,” she said at the Family Dollar at 4701 Peoria St. “And it just seems to be more convenient. You can get in and out quicker than at bigger stores.”
Less inventory a drawback
But Devore paused in her analysis as she searched without success for a bottle of Nyquil. She could find only tablets of the product.
Her experience illustrated an inherent drawback: less inventory, in stores covering on average about one-fourth or less the space of conventional grocery stores.
Smaller footprints and lower inventories keep the stores’ operating costs down.
“We are a low-cost operation — that’s one of the secrets of our success,” said Kiley Rawlins, an executive at Matthews, N.C.-based Family Dollar. “We won’t have the selection of toothpaste you’ll see in a Kroger or Walmart or Target, but we’ll have the most popular brands.”
Buoyed by rising sales in the weak economy, dollar stores have been growing faster than their conventional retail counterparts and grabbing market share.
Retail consulting firm Willard Bishop has forecast in a report that dollar stores will have inflation-adjusted annual sales growth of 5.4 percent through 2013.
Traditional supermarkets, on the other hand, will have projected annual growth of just 0.3 percent over the same period, according to the report.
Dollar stores have evolved to meet customer needs.
In addition to expanding beyond $1-per-item pricing, some chains have added more brand names and improved the quality of their house brands.
“A lot of the stigma associated with value discounters has disappeared,” said Dave Marcotte, a senior vice president of consultant Kantar Retail. “The dollar-store format has started to get its act together — seeing itself as not just a place with cheap products and maybe not too clean.
“It is beginning to show itself as real retailers.”
The industry is dominated by three large players: Dollar General, Dollar Tree and Family Dollar. Dozens of smaller chains and independents also compete in the sector.
Dollar General declined to comment for this article, citing “quiet period” regulations prior to its earnings release this week. A Dollar Tree spokesman did not reply to calls for comment.
Family Dollar has the largest presence in Colorado, with 108 stores. It grew fast after it arrived in Colorado in 1995, with 61 stores over the following 10 years, but its growth has moderated recently, with two new stores added each year since 2007.
Dollar Tree, the second-largest such chain in Colorado, has increased from 18 stores in the state in 2004 to 70 today. Dollar General has 25 stores in Colorado.
The big three boast some sizable financial metrics:
• Combined market capitalization of $23.2 billion.
• Combined sales over the past four quarters of $26.6 billion.
• Average total return to shareholders over the past year of 34.6 percent.
Although financial performance has cooled in the past quarter for some of the sector, its prospects for growth make it a takeover target.
“Substantially undervalued”
Last month, investor Nelson Peltz led a group offering more than $7 billion for Family Dollar, representing a premium of up to 36 percent over its share price at the time.
Family Dollar rejected the bid and called it “substantially undervalued.”
The chain recently launched a new house brand of food — Family Gourmet — that it says is of higher quality than other dollar-store brands and provides for a larger selection of food items than in some competitors’ stores.
It’s part of an initiative to make stores attractive to a broader range of shoppers and keep them coming in with the inducements of convenience and competitive pricing.
Good deals can be found, but the stores’ reputations for consistently underpricing mainstream competitors are not always accurate, Denver shopper Rose Cordova Vollmer said.
She was satisfied with a recent purchase of 100 packets of house-brand artificial sweetener for $1.25 at Family Dollar, but less impressed with a jar of Hellman’s mayonnaise priced at $4.25.
“Dollar stores are OK, but they’re not always what you think they are,” she said. “You have to compare prices.”
Steve Raabe: 303-954-1948 or sraabe@denverpost.com
Bang for few bucks
Dollar stores are growing quickly as shoppers look for bargains. The three biggest have combined annual sales of $26.6 billion.
Dollar General
Headquarters: Goodlettsville, Tenn.
U.S. stores: 9,273
Colorado stores: 25
Employees: 79,800
Annual sales: $12.7 billion*
Dollar Tree
Headquarters: Chesapeake, Va.
U.S. stores: 4,009
Colorado stores: 70
Employees: 50,000
Annual sales: $5.9 billion*
Family Dollar
Headquarters: Matthews, N.C.
U.S. stores: 6,800
Colorado stores: 108
Employees: 45,000
Annual sales: $8 billion*
*Most recent four quarters reported
Numbers
5.4% Forecast inflation- adjusted annual sales growth for dollar stores through 2013
0.3% Forecast annual sales growth for supermarkets over the same period
Source: Willard Bishop
