Shoppers Turn to Dollar Stores to Save Big Bucks
It’s been seen before. When the economy gets a bit shaky, more consumers turn to dollar stores in search of bargains. The same has been true during the most recent economic rough patch as consumers such as Rose Truss of Frederick, MD, make frequent visits to dollar outlets.
Ms. Truss told the Frederick News-Post, “I go to Giant Eagle (supermarket) like everyone else,” Ms. Truss said. “But the economy is eating us alive and gas prices aren’t helping any. This (Dollar General) is usually my first stop these days.”
According to Nielsen, there are plenty of consumers making their way to dollar stores as the channel is the fastest growing retail format. While store growth has slowed in recent years, the top dollar store chains (Dollar General, Family Dollar, Dollar Tree and 99 Cents Only) have opened new locations at a rapid pace. Dollar General plans to open 675 new locations this year while Family Dollar has 585 new stores planned.
Another consumer, Sarah Holmes, explained why she shops at dollar stores. “If you can get it for $5 here and not pay $7 at Wal-Mart, that’s two more dollars for the gas tank,” she said. “I’ve always liked to come to the dollar store. They have things some other stores don’t have, and it’s cheaper.”
Discussion Questions: How effective are dollar stores currently being at drawing shoppers away from other formats? What do they need to do to keep customers coming back when good times return?
Consumers like the price point and the convenience of the smaller footprint. These benefits will still be draws in the future, when the economy (hopefully) turns around.
If/when the economy does upswing, Dollar Stores are perfectly positioned to take advantage–by shifting brand assortment to be more aspirational, at a discount.
Dollar Stores is what they is. They do nothing other than be themselves to attract customers, and the economy does the rest. Umbrellas sell best when it’s raining, not because of marketing. To keep customers coming back, Dollar Stores must pray for a poor economy.
The industry insiders who think the growth of dollar stores and of discount groceries such as Aldi are tied directly to a shaky economy are only half right. The relatively quick shopping time required inside these stores due to a smaller footprint is a revelation to many shoppers, who initially only went there looking for bargains. The attraction of the saner, smaller store will linger for many customers even once the economy is booming again.
The dollar channel is a convenient (quick shop) format with strong pricing every day. Their limited assortments and “annual supplier agreements” provide for the best annual cost of goods from their suppliers, which they pass along as good retails to their shoppers. Shoppers understand the convenience and price value positioning, but can and do get frustrated with the high out-of-stock issues found in some dollar formats, and with the absolute lack of customer service.
The dollar store channel has a great positioning to enhance their shopping proposition by making certain they stay in stock 100% of the time, train their store people to be more attentive, and continue to maximize the assortment they stock. Costco has done this well in family size, limited assortment offerings.
There will always be poor people, so dollar stores have a permanent market. But it doesn’t pay to be in that channel if your competitors are building new locations everywhere and your customers’ discretionary income is rapidly declining because they can’t afford fuel and loan payments. Good thing dollar stores sell food, because food stamps subsidize that volume. Ain’t no clothing stamps or crafts stamps or hardware stamps or shampoo stamps. Yes the rent is cheap but there’s a good reason it’s cheap.
No retail audience is easy to attract and hold profitably. Not the rich or the poor or teenagers or boomers or 2-income families or anyone else. In America, it’s just too easy to conveniently shop someplace else.
Dollar Stores have been popular long before the downturn and will continue to be popular through the next cycle as well. If, as many of our pundits predict, dollar stores’ customer growth is inconsistent with a strong economy and robust disposable income, why is it that dollar stores have grown in both boom and bust times?
Dollar stores do have an opportunity to change their mix as chains like Walmart begin to divest themselves of categories where either sales have declined (crafts, hardware, etc) or it doesn’t fit their more urban feeling image (sporting goods hunting and fishing, etc). This provides an entre into businesses which is consistent with their customer demographic and can provide a reason for new and repeat shoppers.
If the stores are bright, attractive, and a pleasure to shop, with recognizable and organized aisles of particular merchandise, they will maintain their customer base. In difficult economic times, these customers will buy more products there and tell others.
I regularly shop at the Dollar Tree stores, and have for years. They’re a favorite with teachers, moms, and crafters because they offer essential items for these groups at an unbeatable price. School/office supplies; party and seasonal goods; gift wrap, mylar balloons and cards; kitchen and household items are things that everyone needs and aren’t “brand dependent.” The Dollar Tree stores are clean, cheerful, and well-organized.
I am frequently amazed by what can be found there for $1–items that cost $3-5 at Walmart, at times. Last year, one of our DT stores began selling fresh and frozen food, offering many name brands. This is a haven during tough economic times but a place where one can buy essentials in an attractive atmosphere anytime.
In depressed economic times dollar stores are like cheap Costco stores: they are a low cost treasure hunt. One is never sure what is going to be in a dollar store. So consumers, while trying to stretch their food and merchandise budgets, have a little guilt-free pleasure of picking up a few non-essential items for only 99 cents.
If dollar stores want to keep consumers coming back in good economic times, they should follow the tried and true rules of good retailing: clean stores, good assortments and friendly helpful staff.
When a family’s bucks are few,
Dollar Stores will have to do.
But when one’s back on their feet,
Dollar Stores visits don’t repeat.
Dollar Stores are popular today because of the shrinking budget. They can keep customers coming back in the upturn by focusing on the customer experience. Things like customer service, store cleanliness and organization, quality products, variety of products, and product availability. Never have aisles loaded with merchandise to be stocked during store hours. Keep the store clean and organized. Many have already gone from cash only to credit cards which is a good move in today’s time.
Let’s be honest. Who feels better about themselves shopping at the dollar store? Yet it is the fundamental reason people shop. Outside of necessities, the money in retail is in the wants, not the needs. Woolworth’s was popular during downturns–where are they now?
The dollar store is an obvious shopping destination in turbulent economic times. This is a golden opportunity for dollar chains to make some real penetration. By providing and excellent shopping experience, people will come back.
Dollar stores do not have to be bargain basement, no frills stores. One chain that I have worked with in San Diego did an excellent job of merchandising and customer service. There are ways to maintain consistency even with a revolving inventory mix. And because it’s dollar shop doesn’t mean you have to give dollar shop service. Sterling service will go a long way in maintaining customer loyalty and expanding the customer base.
The value proposition is already there. Customer service and excellent allocation and merchandising is the icing on the cake and your customers will be impressed by what they see if you go above and beyond what they expect. This is truly an excellent opportunity for anyone in the dollar shop business.
Liatt is right. Dollar stores, at least those that I’ve visited, are plenty more convenient than most other stores.
I recently read an article describing how Dollar Stores are actually hurting right now in the current economy and having to raise their prices to $1.25 or a $1.50 for items that used to sell for a dollar. They are finding it hard to explain the increase to their consumers and one owner even said she would not open a Dollar store today.
Remember, the increase in gas affects everything and everyone, the shipments of those little dollar knick knacks and juice boxes are rising in cost as gas prices rise. Retailers high- and low-end alike are being affected by everything from increasing gas to the home mortgage crisis, but smart retailers are taking this time to evaluate their business practices as well as taking cues from the big boxes on how to survive.
Dollar stores will be in for a good time for some time to come. Make an investment in one today. The impact of high inflation and rising export costs from the likes of China, India and Vietnam will eventually play its part on them too.
Dollar Stores and Dollar Zone areas in grocery, drug, and mass market are by far our fastest growth area in software and audiobooks. No surprise there: Netflix is doing it at effectively a buck a rental as is iTunes at 99 cents each.
The cleanest operators are Dollar Tree and 99 Cent stores because they have single pricing. Walking in the store consumers know they get anything for a buck. What a bonanza!
That’s why Dollar Tree is growing 700% faster than Walmart in the US. That’s why Dollar Tree’s announced strategy is to get a store as close to Walmart as legal, the closest “out-parcel” in real estate jargon.
We have plenty of upscale customers writing us about products and product ideas who love DT and 99. The CEO of Dollar General points out that over 71% of people making over $75,000 per year shop at a dollar store.
Who doesn’t? Those that haven’t been in one yet.
The great thing about DT and 99 is they are smaller more intimate stores, especially the DT ones (99 is much bigger, but still easy to get around in).
The manager is usually doing something useful; on the floor, at a register, involved. Nice.
Very impressed. Now, what are the grocery folks doing? Exactly the same thing in dollar aisles. Impressive. Drug stores are doing some of it.
As a vendor, shipping millions N 30, no nonsense, no forms, let’s price to the penny. Walmart, Target (with their thick forms), could learn something. My first order written by Sam Walton was a single piece of paper, N 30, no nonsense, no forms.
Things are circling back. If Sam were to “return” and “start over,” he’d do a dollar chain. That’s where the action he describes in his best selling book, Made in America is–today.