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Dollar Store Galore

By Chris Kauffmann staff writer
Lansing Community Newspapers
Published March 2, 2003
[ From Retail Marketing Partners, LLC  ]

In the new, deep-discount economy, dollar stores are growing at a torrid pace and ringing up impressive sales figures.


When former Hale Groves General Manager Jim Kretsch came out of semi-retirement last year, he began to look around for a new business to get into.

Having soured on citrus, Kretsch and his wife, Karen, decided it would be a sweeter deal to try their hand at the discount dollar store business.

So, in November, they became franchisees of the Canadian-based chain "Your Dollar Store With More," opening their first location in Ryanwood Shopping Center. At the time, it was only the chain's second Florida store, but the Kretsches have every intention of helping the company expand in the state -- Ryanwood is the first of 10 stores they plan to open from Melbourne to West Palm Beach.

"It's a throwback to the old Five & Dime store -- a variety store with some terrific values," Kretsch said. "I just think it's a niche market that's do-able. We've done very well since we opened."

Move over, Wal-Mart. Make room, Target.

In the new, deep-discount economy, the deepest discounters of all -- dollar stores -- are growing at a torrid pace and ringing up impressive sales figures.

"These categories are getting a new shopper who says, 'I'm buying these items -- like laundry (products) on a regular basis -- and I know I can get a better deal on it at a dollar store,' " said Phil Rist, vice president at BIGresearch, an Ohio-based retail research firm.

BIGresearch and other retail industry observers say dollar stores are appealing to what they call the new, practical consumer.

"And it's not just the low-income shopper anymore," said Rist. "Everyone is shopping for bargains. It means you're a smart shopper. It's fashionable to be practical."

Kretsch agreed.

"It seems to be extremely popular with a cross-section of the entire public," he said. "All segments of society are coming through here -- professionals, working class, tourists, retirees, young, old. It seems to have a wide-base of appeal."

This practical consumer also is driving the growth of dollar stores across the country and along the Treasure Coast, where some 25 stores have sprung up in shopping centers from Jupiter to Sebastian in the last few years. Chain-owned stores and independents alike are popping up in every neighborhood -- even communities too small for a supermarket.

Indian River County alone is home to two Dollar General stores, three Dollar Tree stores and two Family Dollar stores as well as Kretsch's store and the independent, privately held Dollar Store.

"Our sales have grown even through the tough patch in the economy," said Dollar Tree spokesman Adam Bergman. "Our competitor is anyone who sells at full price."

In other words, the proliferation of dollar stores both locally and nationally is a sign of the times.

"During tough economic times, everyone is a practical shopper," said Rick Gallagher, publisher of Stores magazine. "It's no surprise that stores giving discounts are the ones who benefit from this trend."

For instance, chains like Dollar Tree are climbing the ranks of the national retail lists by picking away at the market share for basic consumables -- laundry and soap products, hair care, candy, food and batteries, among other products.

Dollar Tree recently cracked the nation's Top 100 Retailers list (it ranked 90th) published by Stores magazine, a National Retail Federation publication. It joined Top 100 rival chains, Family Dollar, which has soared 30 places in three years to rank 53rd, and Dollar General, which scaled 25 places in a year to become the nation's 39th largest retailer.

Market leader Dollar General of Goodlettsville, Tenn. has more than 5,500 stores nationwide. It generated $5.32 billion in sales in 2001, up 17 percent from the year before. Dollar Tree and Family Dollar's sales growth also was about 17 percent over 2000.

The practical consumer, of every socio-economic background, is heading toward dollar stores because "it's fun to get a bargain," said Gallagher. "And they're doing well because of it."

Florida's a hot spot

The growth of dollar stores, especially in Florida, is indicative of the trend.

Dollar Tree, with 179 locations so far in Florida, has its highest concentration of stores in the state. Last year alone, the company added 25 stores in Florida.

"Our real estate strategy pivots on 20,000 population within a five-mile radius (from the store)," said Bergman. As Florida's population expands, so will the Dollar Tree expansion into the state, he said.

And look for another Family Dollar on Orange Avenue in Fort Pierce by mid-April, joining three other Family Dollars in town. In addition to 253 Family Dollar stores in Florida, the company will add 24 more by Aug. 30, said George Mahoney, Jr., executive vice president for the franchise chain.

"Florida is a great expansion state for us," he said.

Besides the down economy, officials with dollar stores say a number of factors contribute to their success — simple price points, a focus on consumables, convenience and an efficient supply chain.

Bergman says this has forced groceries, drugstores and greeting card companies to compete by offering lines at under a dollar. "Given the choice, people would rather not pay full price," he said.

Cassandra Benjamin- Smith, whose Mercedes SUV can be seen regularly parked at the Dollar Tree on Georgia Avenue in Fort Pierce, says she lives comfortably but shops practically.

"I have a limited time to do shopping, and I'm very bargain-conscious," said Benjamin-Smith, who has a two-income household. "I've found Dollar Tree the most practical place to shop, especially for gadgets and knick-knacks."

Michael Warshower, vice president of merchandising at Miami-based distributor Buckstore Inc., believes the simple pricing structure is key to dollar stores' success. The $1 price-point encourages impulse buying in some people and helps others budget.

"You go in for detergent and grab a couple more items," said Warshower. "You buy peace from the kids with only two or three dollars."

Bergman says the large retiree population in Florida uses the dollar price-point for budgeting. "Retirees' income is fixed and so is the Dollar Tree price point — $1. Nothing higher, no fractions like $1.59," he said.

Location and pricing

Location also is key to dollar stores' success. Buckstore helps their independents find spots next to a major anchor.

"When we know a Publix is coming up, we try to get a spot right next to Publix," said Warshower. "The one next to a Wal-Mart does really well."

Kretsch's Your Dollar Store With More is located a couple of storefronts away from Publix in Ryanwood.

A steady supply of inexpensive goods also is critical to the dollar store concept.

Family Dollar and Dollar Tree have invested heavily in regional warehouses, inventory control and transportation systems to keep shelves stocked. They deal directly with manufacturers around the world.

"That's how we can offer good values to our customers and still generate margins that are acceptable," said Family Dollar's Mahoney.

Independents need to rely on other supply channels for stock.

Mohit Ratti, the manager of the independent Dollar Store in Vero Beach, said the store gets its merchandise from multiple suppliers from Miami to California.

"Miami is where we most frequently go, though," he said. "They have many stores there."

Other independents get buying assistance through a handful of distribution companies like Buckstore. In addition to helping independents go into business, Buckstore helps them manage the supply chain.

"In this business, the margins are really tight. So, we broke that chain," he said. "We put importers directly in touch with store owners."

With all of the new dollar stores, will there be enough shoppers to fill the aisles? BIGresearch thinks so.

The retail research firm's Rist says the number of people in his surveys who shop based on price soared by 70 percent in the past two years. And shoppers who identify themselves as practical indicate they intend to keep it that way. "We've seen it as a growth trend," said Rist.

Gallagher of Stores magazine thinks the dollar-store niche is here to stay.

"It's partly because they sit in a market that is unique," he said. "It's a genius concept. Dollar stores have created a new market beneath the standard discount market."

(Correspondent Shelley Owens contributed to this report).


 

 

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