Annalisa Rodriguez/Indianapolis Star—Zandra Jones finds herself making a trip to Dollar General almost every day for one thing or another.
She is one of the many shoppers that retail experts say are looking for cheaper, more convenient options after the great recession. Jones lives just half a block from the store, where less than 100 feet away another dollar retail giant sits and one more will open soon.
On this particular day, she was shopping with two of her grandchildren. In her cart were boxes of bow tie pasta, strawberry Nesquik mix, gummy worms, Lays potato chips, paper plates and fruit drinks for the kids.
Her 6-year-old grandson eagerly picked up a box of Star Wars fruit snacks. “Nope,” Jones said. “Nope.”
Retail experts say that shoppers like Jones — who are trying to save money during tight economic times — have increasingly turned to dollar stores in recent years, leading to a growth in the number of stores nationwide.
In one part of Indianapolis, evidence of that can be seen. At the corner of 38th Street and College Avenue, a Family Dollar sits across the street from a Dollar General. Next door there will soon be a Dollar Tree.
Dollar stores are one of the fastest-growing segments in the retail industry, said Howard Davidowitz, chairman of Davidowitz & Associates, a national retail consulting and investment banking firm headquartered in New York City.
Between the three largest dollar store chains — Family Dollar, Dollar Tree and Dollar General — the total number of stores has jumped from 17,621 in 2006 to 22,619 in 2012.
“Dollar stores are exploding,” he said. “Most consumers are looking to trade down. They’ve got to stretch their dollars.”
Saving every penny
Times are tough for Belinda Leathers, 35, of Indianapolis.
She’s a single mother of a 4-year-old and a 15-year-old.
A year ago, she left her job as a dispatcher for Utili-Comm South when doctors thought she had breast cancer. At that time, she had been off of welfare for almost two years.
Turned out that she didn’t have breast cancer. She has tried to find another job with no luck. The only government benefits she receives are food stamps.
She used to shop at dollar stores a couple of times a month. Now, it’s a couple of times per week.
“For people with low incomes, it’s a lot easier,” she said. “You can come in here and get a whole meal.”
Retail experts say the economy has been a reason why shoppers are increasingly turning to the low prices that dollar stores have to offer.
They point to the recession and subsequent housing crisis, lingering unemployment and high gas prices as reasons why the average consumer is looking to pinch pennies.
“The economy is a train wreck for the overwhelming number of Americans and that means they’re looking to save every penny,” Davidowitz said. “Saving every penny is a priority and it’s a sensible priority.”
Family Dollar spokeswoman Bryn Winburn says the company has seen that customers are looking to save money.
“People now view the way they spend money much differently,” she said in an email. “It’s en vogue to save money and save money on the products you buy everyday — Windex, pasta sauce, shampoo, frozen pizzas.”
Contributing to the success of dollar stores is a simple format that allows them to maximize profits.
Dollar General net sales increased from $9.2 billion in 2006 to $16 billion in 2012. Family Dollar’s net sales jumped from $6.4 billion to $9.3 billion over the same time period, and Dollar Tree saw a rise in sales from $3.97 billion to $7.4 billion.
Dollar stores are often small, meaning that rents are low and only a few employees are needed. They also keep costs down by opting for cheaper vacant locations rather than new shopping centers.
“They don’t require the overhead to operate,” said Davidowitz, “therefore they can offer cheaper prices and make money.”
Davidowitz said dollar stores may buy brands that have been discontinued at a low cost, allowing them to make more profit.
“They can afford to offer you a pretty damn good deal,” said Davidowitz. “They are very successful in earnings.”
A broader concept
For Ashley Johnson, Family Dollar is the place to get household necessities. — dishwashing liquid, laundry detergent, toilet paper, paper towels, soap and diapers.
Some things are a bargain — two-packs of paper towels for $1, the big value packs of toilet paper that give her 12 rolls for $5 or $6.
But other things don’t seem like such a good deal, she says, pointing to a bottle of fabric softener priced at over $10.
“Some of the stuff is not a good buy,” she said.
But it is a convenient buy.
The closest Walmart, she says, requires a considerable trip for her.
“Sometimes,” she said, “I just don’t want to travel all the way up there.”
Dollar stores tend to be located at spots that are not as far out as supercenters, said Davidowitz.
Dollar General has found that the majority of their customers come to them from within a 3- to 5-mile radius or a ten-minute drive. About 70 percent of the chain’s stores serve populations of 20,000 or less.
“We want to make sure that we’re able to give that convenience factor,” spokeswoman Crystal Ghassemi said, “to someone who may not be within a short drive of other options.”
Dollar stores have also begun to sell more food in recent years. Over the past five years, said Winburn, Family Dollar stores have added more space to carry groceries, convenience and candy products and more coolers to increase refrigerated and frozen food assortments. Over the past two years alone, the retailer has increased food assortment by over 30 percent, adding brands like Pepsi, Tyson chicken, Gordon’s fish sticks and Nestlé chocolate chip cookies.
Stores are selling more food and fewer discretionary items, said Davidowitz, because “people are buying needs, not wants.”
The addition of food has broadened the concept of the dollar store further, said Jeff Green, president and CEO of Jeff Green Partners, a retail real estate consulting firm headquartered in Phoenix.
“It doesn’t include things that are only just a dollar and it doesn’t only include things that are non-perishable,” he said. “The merchandise has broadened.”
For Jones — who lives right down the street from Dollar General — that is a good thing. There aren’t any grocery stores nearby and that makes a big difference during those times when she doesn’t want to travel 15 or 20 miles to get a loaf of bread.
“I love it,” she said. “It’s like our own little mini grocery store and it makes a lot of people around here happy.”
An uncertain future
But as the economy slowly recovers, some experts believe dollar store growth may be reaching a cap.
Does that mean store closures? Not necessarily. But it does mean that there may not be much new growth, says Green.
“They’ve grown so quickly and it was very dependent on the economic downturn,” he said. “As the economy improves, the demand for those types of stores will probably wane a little bit.”
Such rapid growth, said Green, has resulted in a saturated market.
And not only did dollar stores proliferate, he said, but drug stores and department stores also began to have sections of their stores that included deeply discounted items.
As the economy improves, said Green, traditional retailers will be the ones to benefit.
“Traditional specialty retailers will be the ones that begin to see sales increase as the economy gets better,” he said. “Some of that demand will be transferred from the dollar store back to those traditional stores.”
But Daniel Butler, vice president of retail operations at the National Retail Federation, believes there is still room for growth. What the recession did, he said, was bring more awareness to the dollar store.
“It introduced new customer bases to them so that when the recession ended the customers continue to go to them,” Butler said. “A good portion of them continue to shop in that format.”
As long as she can continue to save money, Jones knows that she will be one of them.
“If the price is right,” she said, “I’m there.”