The Demise of Dollar Stores?

LondonJuly 15, 2014Planet Retail questions how long dollar stores can sustain their forward momentum in its report U.S. Value Channel Outlook. U.S. research director and report author Sandy Skrovan commented: “Underwhelming financials recorded by several value retailers this past year and, more recently, some shaky quarterly comparable-store sales results suggest possible overexpansion or at least expansion at too aggressive a pace. We anticipate a period of consolidation or shake-out could be in the offing. The channel definitely warrants close attention.”

Planet Retail sees some possible chinks in the dollar store model, as well as other challenges—none the least of which is stiffening competition (e.g. Walmart Express)—creeping in.

Skrovan added: “Shoppers are diverging into ‘haves’ and ‘have-nots’. On one hand, core low-income shoppers—dollar stores’ bread and butter—remain financially strapped and in dire need of affordable shopping options. So we see retailers like Dollar General and Family Dollar ramping up the affordability factor through price reductions and the addition of more USD1.00 items.

“On the other hand, value retailers must be on high alert because middle- and upper-income shopper segments—feeling more upbeat about easing unemployment, future job and income prospects, and the gradual economic recovery—could look to trade up and potentially out of the value channel in the coming years.

“Another challenge is the bifurcation of performance among the value channel players themselves, again marked by a division between ‘haves’ and ‘have-nots’. High-performers—like Dollar General, Aldi and Dollar Tree—are gaining share and separating from the pack. These three players are going to remain on a rapid growth course. Together, we forecast them to grow sales at an 8.0 percent annual clip while adding more than 5,000 stores over the five-year horizon.

“Other not-so-fortunate players could be left in the dust. Family Dollar is actively reviewing its operations and, in June, adopted a poison pill to ward against a possible takeover. It is closing 370 stores this year and slowing future expansion. Regional retailer Fred’s, meanwhile, continues to mull its strategic options. Five years from now, the value channel landscape could look markedly different,” concluded Skrovan.

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