The theory that the Great Recession has changed American consumers forever, creating a perpetually frugal shopping population almost regardless of income level, is going to be put to the test as the economy continues to rebound. Perhaps the greatest laboratory for this test will be the dollar store channel, which has experienced rapid growth in recent years.
Certainly, there are many who expect the channel to thrive. Laura Champine, a retail analyst at Cowen & Co., is among those who see dollar stores growing despite a rebound in luxury categories in recent months.
"We didn't expect to be promoting the stocks of the discounters at this stage of the recovery," Ms. Champine told Time magazine. "This reflects the high unemployment levels and a value-focused consumer. Usually, we'd be recommending the growth-oriented retailers, not the bottom feeders."
Dollar store chains are certainly bullish on their own prospects. Dollar General, the nation's largest chain in the channel, announced yesterday that it would open 625 new stores this year including locations in three states, Connecticut, Nevada and New Hampshire, where it has not previously had a presence. The company, which also plans to remodel 550 other locations, expects to add 6,000 store-level jobs in 2011 as it expands.
The chain has grown by increasing its emphasis on everyday staples such as grocery items and household products.
Dollar General, which currently operates more than 9,000 stores, said in August it was looking to add beer and wine to its product selection with a goal of selling the alcoholic beverages in at least half the locations it operates. The chain sought to boost toy sales in its stores over the recent holiday selling season by offering a 10 percent discount on bulk toy purchases of $250 or more.
These strategies may have brought in higher income shoppers, but will they remain loyal to the channel?
"For the second year in a row, 95 percent of our trade-down customers are saying that, regardless of what happens to the economy, they're going to continue to shop with us," said Rick Dreiling, CEO/chairman of Dollar General Corp.
Competitors in the dollar channel are also growing.
Family Dollar Stores, the second largest chain in the channel with roughly 6,800 stores, saw comparable store sales grow 6.1 percent for the quarter ending August 28. Total sales were up eight percent for the period.
Dollar Tree, with just over 4,000 stores, bought its way into the Canadian market with the acquisition last year of Dollar Giant and its 85 stores.
Discussion Questions: Do you subscribe to the "new normal" theory that says consumers have been permanently changed by the Great Recession? What do you think of the prospects for dollar stores as the economy continues to improve?