A dollar has very little value these days.
That’s a complaint I’ve heard so many times in recent years from friends, family members and others.
But I’ve never heard it from dollar store executives, who are driving their value-oriented businesses to new heights. These operators are quickly growing consumables and expanding the number of store units and geographic reach. Growth is unlikely to max out for many years. The expansion, all based on the power of a dollar, has proceeded largely under the radar because this channel tends not to have an outsized impact on any one particular competitor.
But not all is perfect in this world, so it’s logical to ask exactly how long the good times will last. Sales of non-consumable discretionary items, which typically carry higher margins, have suffered recently for operators including Family Dollar and Dollar General.
There are also some questions about whether shoppers view dollar store deals as truly better than those available elsewhere, and whether the economically strapped customers of dollar stores will eventually trade up to other retail formats when the economy shows sustained improvement. I’ve heard occasional shopper feedback that criticized the in-store experience, and also complained about pricing as compared to Wal-Mart or even some supermarkets
One of those upbeat about the future of dollar stores is Meredith Adler, managing director of Equity Research, Barclays Capital.
She said they are “beautifully positioned for growth, convenience, great value image and ability to do well in any economic environment.”
Adler said she doesn’t agree with those who predict trading up from dollar stores. She cited the recession of 1991-92, after which consumers in general waited years to resume normal buying behavior, even though it was a milder recession than the last one.
On the question of consumer price perception, Adler said dollar store operators tend to focus on known-value items to be competitive where they need to be.
Adler’s points are on target, as usual, and I agree dollar stores are in an enviable position. However, they will still need to closely track how consumers are experiencing their format. Supermarkets, meanwhile, will need to decide if they should take a more aggressive stance against these operators, because at some point dollars really begin to add up.
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