By George Anderson
Dollar stores are not bringing in the dollars the way they had been. The high price of fuel and stepped up competition from other channels has put the brakes on same-store sales. Two years ago, same-store sales were up 4.1 percent, Patrick McKeever, an analyst with Sun Trust Robinson Humphrey, told The Wall Street Journal. In the first half of this year, the increase was 0.4 percent.
Retail Forward sees total sales for the industry coming from existing and new stores continuing to grow in upcoming years but at a slower pace than in the past. The market research firm pegs dollar store sales growing at a 5.4 percent annual rate over the next five years. That's down from the 6.2 percent clip of the past five years.
Sandy Skrovan, vice president of Retail Forward, said growth is slowing in part because of the number of stores that have shot up in recent years. Citigroup estimates there are 17,000 dollar stores operating today; 50 percent more than in 2001.
"I wouldn't yet characterize the (industry) as mature - but probably at the peak of its growth cycle and on the cusp of maturity," said Ms. Skrovan.
Of more immediate concern to dollar store operators is the economy, energy prices in particular. The high cost of gas and a jump of up to 52 percent in natural gas prices to heat homes has had and will continue to have an impact on the low-income core consumer of the channel.
On a conference call in August, David Perdue, chairman and chief executive of Dollar General, said, "We expect our core customer's discretionary spending to continue to be pressured by high gasoline prices and unemployment."
At the same time, consumers are putting more money into energy costs and looking for ways to cut down on expenses by combining trips to stores, for example, competitors of dollar stores are finding success through imitation. Ten for $10 sections and other variations on the dollar store theme are common in many mass merchandisers, supermarkets and drug stores today.
Moderator's Comment: Do dollar stores need to wait it out until the economy improves and their business comes back or has a weakness in the dollar store model been exposed that needs correcting right now if the channel wishes to avoid the fate of the old five and dimes?
One of the factors that has hurt dollar stores is the format's inability to raise prices. As we recently read somewhere, a dollar store is no longer a dollar store if it starts selling everything for more than a buck. - George Anderson - Moderator