Ryan J Kugler

What Do Dollar Chains Tell Us About The Economy?

May 15th, 2013 | No Comments | Filed in Dollar Chains, Retail

dollarstoreDepending on what part of the country you live in and your shopping habits, you may be familiar with “Dollar” retailers.

These chains – like Dollar General, Family Dollar, Dollar Tree and others – have been growing rapidly in the last decade.

Just as one example, there are over 10,000 Dollar General retail stores in the U.S. As a comparison, there are about 1,700 Target stores in the U.S.

However, news recently came out that these stores are struggling. Their stock prices are all down.

Have Dollar stores peaked? Are they good for consumers?

It’s an interesting question.

In general, the Dollar stores set themselves up as an alternative to big-box retailers like Walmart and Target. Dollar stores are smaller and, often, closer to population centers. (As opposed to the suburban locations of many Walmarts, Targets, etc).

But, with the recession, it’s my suspicion that Dollar stores started becoming much more of shopping staple for people at lower income levels.

When things are tight, you buy just what you need. Dollar stores specialize in smaller sizes at lower price points.

You don’t “stock up” with the large sizes available at Walmart, Target or Costco.

Also, a trip to one of the bigger retailers means a drive – which means gas. Depending on where you live, if it’s a 50-mile round trip drive to Walmart, that can add up when gas prices are high.

So, and this is only a theory, one possible reason for the downturn at Dollar stores is that the economy is actually doing better.

Maybe people are actually making the trip to bigger retailers instead of shopping at Dollar stores.

This is just one possibility. Of course, there were other things going on in the retail landscape last quarter – notably Hurricane Sandy – that affected results.

Dollar stores do provide a valuable retail outlet in many communities. I don’t think they’re going away.

When you just need some milk or toilet paper, it’s much easier to make a quick stop at a Dollar store than travel all the way out to the Walmart.

For those of us that live in urban areas, we have to remember that when you live in a rural area, shopping patterns are much different.

For me, I can get to a big retailer in about 10 or 15 minutes. The discrepancy between a quick trip to the Dollar store and a long trip to the big-box retailer is not the same for me

So what’s the future for the Dollar chains? Many of the chains still have plans for expansion.

Is this a smart move? Have they maxed out and made too many stores (a la Starbucks a few years ago)?

As the economy improves, will the Dollar stores continue to grow?

Tell me what you think. Drop me a line at ryan@dva.com.

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