Dollar Stores Outlook
Small format value retailing, including dollar stores, will remain a high-growth darling of food, drug, and mass retailing over the next five years, reports Retail in a recently released Industry Outlook report, Dollar Stores and Other Small Format Value Retailers.
"The small format value retailing sector is on a rapid expansion trail and market saturation is more than a decade away," comments Sandy author of the report and a Vice President with Retail "We expect market leaders to continue their rapid growth course, extending their appeal as a convenient, easy-to-shop value alternative to big box stores," she adds.
Retail projects 8,000 more stores to open in the next five years and anticipates the pace of sales growth for small format value retailers to be as strong in the coming years as it has the last five.
Small format value retailers grew nominal sales at an average annual rate of 6.1% (5.6% after removing inflation) over the last five years. Retail forecasts sales growth of 7.5% in 2004 and an average annual pace of 6.2% through 2008 as the channel continues to benefit from continued rapid expansion, same store sales growth, and efforts to increase shopper traffic, shopping frequency, and average ticket size.
Next to supercenters, dollar stores remain the fastest growing channel among food, drug, and mass retailing. No frills stores, low prices, and a small, easy-to-shop and easy-to-access format gives shoppers a convenient option to big box discount retailers, like Wal-Mart. "Dollar stores combine pricing power, efficient operations, and small stores to make the model work," comments Sandy
While the weak economic climate of recent years may have initially driven shoppers to "try" small format value retailers, leading players in the channel are extending their appeal to multiple consumer segments. According to Retail consumer survey, over one-third (36%) of all US households regularly shop the format on a monthly basis. Once a haven for low-income households, dollar stores hold growing appeal for moderate and upper-income households, older consumers, and ethnic groups. Easy access with more stores in suburban and urban locations, improved assortment quality, bargain prices, and the treasure trove atmosphere contribute to the overall success of the dollar store concept.
Dollar stores and other small format value retailers have sustained solid financial performance in recent years, while many other retailing formats have struggled. However, sustaining performance in the years to come might prove challenging. Retail expects that as the store base becomes larger and units mature, same store sales will be harder to achieve.
"Rapid growth will likely strain the existing infrastructure of leading dollar stores and other small format value retailers," Sandy comments. "Players in this sector will need to continue investing in infrastructure - e.g., distribution and logistics network, inventory controls, and other information systems - to stay ahead of the expansion curve," she adds.
The growing number of dollar stores brings more intense competition, more market share battles, and more vying for consumer attention. Dollar stores are expected to continue adding more food and other household essentials to their merchandise offer. In turn, more traditional food, drug, and mass players will look to exploit dollar store popularity by launching their own versions of the dollar concept. As a result, Retail expects that the lines of demarcation between retail channels will blur even further in the years ahead.
The growing popularity of the dollar store concept also brings significant opportunities for manufacturers. To extend their consumer appeal, dollar stores and other small format value retailers will consider adding more national brands - if the price is right. "Suppliers will need to pay more attention to this sector as a high-growth distribution channel going forward," Sandy states. "Suppliers willing to work with the leading dollar store players to meet special packaging and pricing needs will find themselves in good stead," she concludes.