Dollar stores did well during the economic downturn, fueled by unemployment and low wages. But despite the improved economy and rising wages, dollar stores continue to do well, even in the face of thousands of retail closures.
In fact, while the Standard and Poor Index for retail has been flat, both Dollar General and Dollar Tree have seen 6-7% increases, with the stock going up 23% and 36% respectively.
Price Conscious Consumers Searching For Deals
Although experts claim the economy has recovered, many Americans face an uphill battle in terms of earning income. Hourly wages have hardly risen since the 1970’s, even after adjusting for inflation. With a growth rate of just 0.2%, it’s no wonder the average employee feels no improvement in their financial status despite economic growth.
That’s because even though theoretically increased demand should result in more profits and therefore higher wages, in reality only the highest-paid workers see an increase in salary.
Add in shifts in technology and market structure, and competition from overseas low-wage labor, and it’s easy to understand why some workers are being dislocated, and others are seeing downward pressure on wages.
All of these factors have led to a shrinking middle class – down from 60% to 50% according to Pew Research – that has had to cut down on costs where they can in order to survive.
Higher Quality Merchandise At Rock Bottom Prices
Although at one-time dollar stores were known for low quality or generic goods, they are simultaneously increasing the quality of their generic brands and including name brands like Kellogg’s cereal into the mix.
This helps draw more regular customers, as they can not only anticipate finding consistent quality products year-round at attractive prices, but it also serves to lure in brand-conscious consumers who might otherwise never have considered stepping into a Dollar store.
Another tactic gives consumers the excitement of snapping up an unexpected rare find by adding what is called “treasure hunt” items throughout the store.
The idea is that while shopping for necessities, consumers can experience the thrill of finding a good deal when they “happen” upon novelty items. And in order to up the ante, dollar stores are including closeouts from name brands, further sealing the store’s value in their customers’ eyes.
Dollar Stores Offering A Convenient Grocery And Drug Sore Alternative
In order to boost foot traffic and offer a wider variety of products to consumers, dollar stores have begun adding cooler, quick prep and ready to eat food in their aisles, increasing foot traffic. These are in addition to the products already carried in their refrigerated and frozen food section.
They’ve also expanded the number of beauty and cosmetic products, offering a wide variety of essentials at prices lower than those at national drugstores. And in a bid to become a one-stop destination for consumers, some dollar stores, like Family Dollar, even add in-store signs encouraging consumers to compare prices to CVS and Walgreen’s.
The Dollar Stores’ Typical Customer
The typical dollar store customer is a woman living in a two-income household, with an average income of just $40,000 a year. Because her disposable income is only about $800 a year, every penny counts, and she is sensitive to price changes of as low as a dime.
Although she most likely has a smartphone, she is a late adapter of technology and does not have Amazon Prime. However because Dollar Stores know their typical customer is likely to start shopping more online, particularly in order to capture greater savings, they are keeping track of consumers and are beginning to position themselves for digitization.
Dollar Stores Improving In-Store Experience
Recognizing that many stores were small and difficult to navigate, dollar stores have upgraded the shopping experience by making it easier for shoppers to find what they need. Newer stores are being added monthly, with clean, attractive, and well-lit spaces.
These changes are meant to encourage more frequent dollar store shopping, which fits in with the data that shows consumers prefer to shop more frequently than in the past.
Instead of loading up on enough products to last a month, the trend is for shoppers to purchase products more frequently. This allows them to spend less at one time, as well as take advantage of frequent sales.
Combined with revamped store design and parking close to the store, shoppers are able to avoid a half-hour foray and be in and out of a dollar store in just five minutes.
And lastly, dollar stores are adding more dollar items in order to accommodate the increasing number of unemployed or low wage customers who purchase increasingly more products at a dollar store.Tags: commercial real estate, commercial real estate investing, dollar stores, retail, retail commercial properties, retail properties