There are many attributes that must be present for an “ideal” NNN investment – growth, stability, location, longevity, and a strong lease guarantee, among others. Dollar stores meet these criteria and continue to surpass market expectations.
Dollar Stores’ Projected Growth & Stability
Not only do Dollar General, Dollar Tree, and Family Dollar (owned by Dollar Tree) thrive in a strong economy, they also realize stable growth in times of recession.
Despite overall declining retail sales, Dollar General continues to increase sales within existing stores and add roughly 1,000 locations annually. CEO Todd Vasos announced in 2018, “…our two-year same-store sales for the second quarter of 2018 was the highest in ten quarters. We posted 2.9% same-store sales growth driven by greater customer productivity.” Why does this matter? Because an existing store’s continued growth makes a reliable, nearly risk-free NNN investment.
More tangible proof that dollar stores are on the rise – 2018 third-quarter results show that dollar stores are now selling more groceries than “high-end” stores. As of Q3, dollar stores sold $24 billion worth of groceries; Whole Foods – $15 billion.
In looking at the retail landscape, there is an elite group of corporations who have a multi-billion-dollar market capitalization, or value, as ranked by Standard & Poors (S&P). Dollar General is on that list; they are growing quickly and soundly with a loyal customer base, especially in rural America, where there are few shopping choices.
Are There Too Many Dollar Stores Already?
According to the Institute for Local Self-Reliance, as of Dec 2018, there are 30,000 dollar stores in America. “That’s more locations than the combined number of Walmart, Kroger, Costco, Home Depot, CVS, and Walgreens – the country’s six biggest brick-and-mortar retailers,” reports Forbes. And the market for dollar stores is only getting stronger – they are becoming the sole shopping choice for many communities, even in areas where there is a Wal-Mart and a large grocery chain. Shoppers still frequent dollar stores because they want to get in and get out with “I need it right now” convenience and an easy shopping experience.
As for too many physical locations, dollar stores have discovered that by spacing their stores out strategically (sometimes just a few miles apart) they can build customer loyalty without cannibalizing other nearby locations.
Is a Dollar Store NNN Investment Truly Recession-Proof?
Though it’s impossible to say with one hundred percent certainty that dollar stores are recession-proof, history confirms growth and consistency in times of recession. Currently, other retailers that target middle-income shoppers, like J.C. Penney, Kohl’s, and Macy’s, are losing customers. Dollar stores are getting that business and will continue to do so as other retailers struggle to keep up with changing times.
If the business cycle moves into a recession, the likelihood of dollar stores continuing to add locations and customers is strong. With a volatile stock market and a possible looming recession, triple net leasing a dollar store is an important investment consideration.
To Wrap it Up: Dollar Stores Fit Ideal Triple Net Lease Criteria
Two other key criteria for NNN success are a strong lease guarantee (15 years on new locations) and a prominent, “branded” location. Dollar stores offer both. They are strategically placed with solid demographics and amazing visibility. It is no coincidence that they are near residents who need their products and like the convenience of the dollar store being close to their bank, pharmacy, or gas station.
Dollar stores also fit the three main end-goals of a NNN investor:
#1 – passive, guaranteed income from anywhere in the country.
#2 – reliability for preservation of equity.
#3 – recession-proof tenant.
Dollar stores are popping up all over the U.S.; they are wooing more shoppers with convenience, price, selection, reliability, and the ability for shoppers to stop and get something right now. If you are looking for a solid commercial real estate investment, investing in a dollar store NNN lease is something to consider sooner rather than later. If you need assistance or would like to learn more, please reach out to one of our advisors.
