In an era marked by the rise of e-commerce, the variety stores channel stands out as a rare example of recent success in store-based retailing in the US. This success is due overwhelmingly to the robust performance of the leading US “dollar store” chains. This briefing will lay out the reasons for dollar stores’ sustained ascendance, explore the key trends and competitors in the category, and discuss the prospects for the continued growth of dollar stores over the forecast period.
Even as many other store-based retailing channels in the US struggle, the variety stores channel has posted impressive sales growth, thanks largely to the success of three “dollar store” chains – Dollar General, Dollar Tree and Family Dollar.
Dollar stores are best known for their extremely low prices, which endear them to lower income consumers. The value and convenience dollar stores provide have also helped broaden their appeal to middle-income and even affluent consumers.
Dollar stores are able to keep prices low on the merchandise they sell because they have adopted effective strategies to keep operating costs low. These strategies focus on minimising labour, real estate and inventory costs.
In a bid to drive growth in foot traffic, the three major dollar store chains are taking steps to expand and improve their grocery offerings. This is placing increased competitive pressure on grocery retailers in the US, especially supermarkets.
Dollar General, the leading dollar store player, has performed extremely well and continues to expand rapidly. Dollar Tree, a rival banner, has also posted strong growth, but the other chain owned by Dollar Tree Inc, Family Dollar, has struggled.
Although its sales and store footprint are much smaller than any of the major dollar store chains, Five Below – with its focus on the youth market – is a US retailer to watch, recording value sales growth of 25% in 2018.
Dollar stores can be difficult customers to deal with for many suppliers. Those that are best placed to engage with dollar stores profitably are those with the scale to fulfil massive orders. Suppliers should also note dollar stores’ preference for smaller product sizes, their private label ambitions and their pivot towards grocery.
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