NEW YORK While Sunday morning news pundits debate the effectiveness of the economic stimulus package Congress and the Obama administration set in motion about a year ago, there can be little debate that the growth in the dollar channel is creating a bit of a stimulus package of its own. Sales are up, in sharp contrast to most other sectors of retail. And, while the state of the economy has caused many retailers to shutter some stores, or otherwise froze capital expenditures for many others, dramatically reducing expansion plans, dollar chains are adding stores — and jobs along with that.
The recession has reshaped consumer behavior, and many fear those changes will be permanent, long outliving the current economic downturn. “iI’s no longer uncool to shop the dollar store,” as Rite Aid’s SVP business development Bryan Shirtliff noted during Drug Store News’ annual Issue Summit roundtable discussion in December. Increasingly, dollar stores are putting more emphasis on everyday consumable items, such as OTCs and health-and-beauty items — big national brands, too, not just the closeouts many dollar stores built their heritage upon. And, that has pharmacy retailers, if not nervous, let’s just say, it’s got their attention.
Indeed, the down economy certainly has been good to dollar stores. It’s almost like the entire channel is on steroids.
Dollar General just last month announced plans to open 600 new stores in the coming 12 months. That certainly will add to the more than 20,000 dollar-channel outlets operating across the country. Seeding more dollar stores across the retail landscape over the past decade has helped the dollar channel realize massive growth in terms of visits per year, more than any other class of trade other than supercenters. The dollar channel grew 58.1% in store count from 2001 to 2009, with the average annual number of trips per household in that time up 18.2%.
Each of the big three dollar-store operators is growing sales almost as fast as they’re building stores. Dollar General posted total sales increases of 13.1%, reaching $8.6 billion and same-store sales increases of 10.3% for the three quarters ended Oct. 30. Average sales per store per sq. ft. were up 9% from a year ago to $192, the chain reported.
The second-largest dollar-store operator — Family Dollar with 6,686 locations by year-end 2009— posted sales increases of 6% for the year ended Aug. 30, reaching $7.4 billion. Comparable stores were up 2.4%. Family Dollar expected to commit between $160 million and $180 million against capital expenditures for its fiscal 2010, an amount comparable to its fiscal 2009, during which the company opened 180 new stores.
And at Dollar Tree, annual sales were up 12.6% to $5.2 billion for its fiscal year 2009 ended Jan. 30, with same-store sales up 7.2%. Dollar Tree opened 240 new stores and relocated and expanded 75 more during that period, for a total of 315 projects. The third-largest dollar chain ended the year with 3,806 stores. For 2010, it plans to open 220 new stores and relocate another 75.
Dollar General, for one, is not only growing stores; the retailer also is making a concerted effort to be more relevant to everyday drug store shoppers with a more consistent lineup of OTC and HBA brands.
“Our planogram updates in health and beauty contributed significantly to our sales growth [in the third quarter],” Rick Dreiling, Dollar General chairman and CEO, told analysts during a conference call in December. “We introduced Rexall as our private brand in vitamins, expanded cosmetics and introduced a line of foot care products,” the one-time Duane Reade CEO added.
That Dollar General is suddenly making a concerted effort to be more relevant in health and beauty makes a great deal of sense, given the company’s present leadership team. Dreiling has been joined by fellow drug store vets Todd Vasos, chief merchant, and Larry Gatta, VP and divisional merchandise manager — the three previously worked together at Longs.
Retailers within the dollar channel, most notably Dollar General, appear to be making a play for that destination shopper. While such nonfood categories as candy, household cleaners and paper products have all sold exceptionally well in the traditional dollar-store footprint, dollar stores today are taking steps toward adding more fresh food and health-and-beauty items to the overall mix.
“There’s an opportunity in health and beauty [because] that’s more of a mainstay in what people buy,” Todd Hale, SVP consumer and shopper insights at the Nielsen Company, told Drug Store News. And that spells opportunity for dollar-store operators looking to broaden their retailer appeal. “They’re no longer really dollar stores — certainly Family Dollar and Dollar General, they’re more like mass merchants when you look at their price points.” Other hints as to the dollar-store transition from a retail treasure trove to inclusion on Mom’s preferred list of retailers to shop is in recent merchandising activity, Hale said. “If you look at some of their ads [in the] Sunday newspapers, they’re definitely stepping up their marketing material and merchandising activity to be more current and [feature] more brand quality than we’ve seen in the past.”
Both Dollar General and Family Dollar have expressed their commitment to branding and brands, Hale said. “They’re getting away from the old-school [thinking] that anything you buy at the dollar store is out of date — they’re very focused on making themselves a real destination shopping trip and being pretty successful at it during a difficult economy,” he said.