As major department store and apparel retailers shutter outlets, dollar stores are going gangbusters, at least in terms of new store openings.
Dollar General, which has more than 13,600 stores, on Thursday reported better than expected Q1 profit and reiterated its target to open about 1,000 new stores this year. Rival Dollar Tree, which also owns Family Dollar chain, said last week that it sees an opportunity to operate more than 25,000 Dollar Tree and its acquired Family Dollar locations combined in the US, up from the current total of about 14,200.
“We continue to see tremendous runway for growth,” said Dollar General Chief Executive Todd Vasos on a conference call Thursday.
While Sears, Macy’s, JC Penney and many other retailers are shutting stores, dollar stores have been a segment of the market seeing one of the fastest store count growth. Between 2005 and 2016, dollar stores have increased their count by 58% to more than 29,400, according to Nielsen data. The only segment that saw faster unit growth (76%) during that time is supercenters, Nielsen data showed, as retailers like Walmart converted more of their discount mass merchandise stores to supercenters including grocery sections.
The sector also looks to have outperformed the broader market by sales. Sales at variety stores, which include dollar stores, rose 6.8% to $57.9 billion on average each year between 2011 and 2016, more than double the 2.6% growth rate of the overall retail industry, according to Euromonitor data.We are well positioned in the most attractive sector of retail.
“We are well positioned in the most attractive sector of retail,” said Dollar Tree CEO Bob Sasser in the company’s earnings call last week, echoing the point that it has “many years of growth opportunity ahead.”
Dollar stores, with much smaller stores than mass discounters or supermarkets, have traditionally benefited from targeting consumers seeking to quickly fill some of their weekday needs and from targeting more lower income shoppers and locating stores in markets, including rural areas, that may not have been as well penetrated by other store formats. During the economic downturn, the sectors also have attracted some higher income consumers trading down.
Nielsen data showed that among customers with household income of $29,000 or less, 43% said they shopped at dollar stores last year, more so than at convenience stores or any other retail format Nielsen tracks. Meanwhile 23% of those earning more than $70,000 said they shop dollar stores.
There may also be an unintended benefit of targeting lower income shoppers. As most physical retailers fret about the Amazon effect, dollar stores look to still be relatively immune. Dollar General CEO Vasos said Thursday, in response to a question about online competition, that only about 70% of its core customers have smartphones. He conceded that, over time, they’ll “probably start to gravitate toward online purchasing,” but for now they are still lagging on that front.
“I don’t see today our core customer spending a lot more of her disposable income online than before,” he said. “We just don’t see that.”
The typical demographic of a dollar store shopper doesn’t have “significant overlap” with the online shopper, said Laurie Rains, group VP of Retail Consumer & Shopper Analytics at Nielsen.