DALLAS — Dollar stores are offering more bang for the buck.

The $24 billion budget store industry is lead by the $6.1 billion Dollar General chain, with more than 6,000 units, and the $4.1 billion Family Dollar, with more than 4,800 locations. There are about 20,000 “dollar stores” across the U.S. and the industry is charting annual volume and net income gains of around 13 percent each, according to industry estimates.

Nearly 60 million U.S. households are expected to shop at dollar stores this year, up from 53 million last year, and 28 percent of American consumers reported shopping at variety stores at least once a month last year, up from 23 percent in 2000, according to ACNielsen Corp.

Dollar stores have honed a less-is-more approach that includes no-frills decor, low prices and even lower overhead, unglamorous yet convenient sites with cheap rent on the fringe of dense neighborhoods or in smaller rural markets with little competition, leading to exponential expansion.

That just might have inspired Wal-Mart’s recent decision to test its own dollar store format in more rural markets, with the 40,000-square-foot prototype less than a fifth the size of its standard Supercenter.

“Dollar stores are even capturing trips in Wal-Mart territory,” stated a study by ACNielsen, the marketing and research firm that called dollar stores an increasing part of American life. “In C and D counties, trips to the dollar store are increasing, while trips to other channel retailers are either stagnant or declining.”

Dollar stores’ smaller size, typically less than 8,000 square feet, is a key advantage over competition from less agile big-box mass and discount retailers, sources contended. Strip shopping centers or freestanding sites are favorite locations of dollar stores, which usually cost up to $400,000 to build from scratch.

“The channel is fast becoming a viable and high-growth sector that is taking consumers and market share away from competitive retail formats,” said Sandy Skrovan, a vice president at Retail Forward, a market research, management consulting and executive development firm.

“It represents an increasing number of doors in which to place products, an increasing number of eyes to see those products and another point of contact with today’s shoppers. Unlike many other retail sectors, which suffered through the recent economic recession and continue to perform sluggishly as the economy grapples for recovery, dollar stores and other small-format value retailers have bucked the trend.”Market saturation doesn’t seem to be a problem, either, as chains such as Family Dollar and Dollar General are growing with at least one new store opening a day. This comes thanks in part to increasing consumer interest and a broader merchandise mix that is enticing untapped shopping segments beyond the genre’s typical core of low-income female and ethnic shoppers, usually 35 to 54 years old with household incomes of less than $40,000. Average purchases are $10 to $20, depending on locale, and most traffic hails from a one- to 10-mile radius.

“Dollar stores have carved out a successful niche for themselves,” said Todd Hale, senior vice president, ACNielsen consumer analytics.

New business is coming in part from a surge of upper-middle-income shoppers bent on saving money and nabbing some great value as well, and it’s not uncommon to spot upscale cars zooming up to the front door of a neighborhood dollar locale.

Dollar stores’ merchandise mixes have evolved to include an incredible spectrum of products, from basic commodities such as soap, paper towels and groceries to soft home furnishings, national mass brand beauty products, innerwear, shoes and surprisingly trendy apparel that’s offering a new perspective on cheap chic.

Budget venues are quickly joining the ranks of Target, Wal-Mart, Ross Stores and Kmart in redefining style on a budget — between 10 and 15 percent of total selling space is devoted to apparel at Family Dollar and Dollar General. At both chains, women’s and juniors’ items typically get the most real estate and have the most-forward fashions, with retail prices rarely rising above $10 per item and private and national brands sharing about equal space.

Here, WWD begins the first in a series of occasional looks at dollar store giants and their growing impact on the way America shops.

First up is Family Dollar, based in Matthews, N.C. The $4.1 billion retailer has stores in 42 states as far Northwest as North Dakota, Northeast to Maine, Southeast to Florida and Southwest to Arizona. The company plans to open 475 to 500 new stores and close about 65 stores. About 60 percent of new stores are targeted to open in urban markets in fiscal 2003, which ends Aug. 30.On Tuesday, Family Dollar reported opening 41 stores during the four-week period ended May 31. With these additional stores, the company operated 4,839 stores.

Women’s apparel and accessories are key components in Family Dollar’s bid to reach a broader and more affluent shopper, said George Mahoney, executive vice president, general counsel and secretary.

“Softlines is about 23 percent of our total business and 17 percent of that is apparel,” Mahoney said. “We consider apparel a very important part of our business. It’s very stable. We’re seeing better performance from apparel because of several changes that we’ve made, including hiring Irving Neger, our new senior vice president of softlines, and several new buyers. We’re differentiating ourselves from our competition with our fashion assortments and selections. It’s also about having the right goods at the right time.”

A recent trip to a Family Dollar store in Dallas found several trendy offerings, all from private label resource Zoey Beth, including pink paisley-print halter tops for $4, cotton gauze peasant tops with suede trim for $7, pin-tucked short denim skirts for $8 and brown fringe-leather tops for $7.

There was also a huge selection of women’s lingerie and innerwear, both private and national brands such as Hanes, lots of gold-tone fashion jewelry for 50 cents to $5, athleticwear, denim and shoes. At noon on a weekday, there were about six shoppers in the shared women’s and juniors’ departments and all were preparing to make purchases.

“Trends won’t sell on just price alone,” Mahoney said. “We’re always out in the market looking for new resources and trying to improve our quality, and price is always very important. Price and value are the factors that today’s consumer is looking at. To Family Dollar, quality means not just the grade or composition of a garment, but having the right colors and styles in stock. We’re doing a better job with apparel and it’s been reflected in our comp-store sales with low-single-digit gains. It’s very encouraging to us. We’re on the right track and apparel will continue to be important to us.”

Like most dollar store businesses, Family Dollar attracts a low- to low-middle-income customer, but is also reaching out to more prosperous shoppers.“All customers want to walk away with a value, not just those with low incomes,” Mahoney continued. “More and more shoppers are realizing that convenience, value and everyday low prices can be found at Family Dollar. Most of our apparel items are under $10 in the spring and summer and under $18 in the fall and winter. We merchandise our stores on a demand allocation package that’s based on current trends and geographic market needs, including automatic replenishment. Our mix includes 60 percent basic apparel and 40 percent seasonal fashion apparel. We have very sophisticated POS systems that track sku levels and inventories and also look for sales trends.”

Family Dollar is planning for sales in existing stores in the second half of fiscal 2003 to increase by 3 to 5 percent. In March, Family Dollar reported the highest sales and earnings for any second quarter and first half in its history. For the second quarter ended March 1, sales rose 13.7 percent to $1.26 million. Net income gained 14 percent to $72.7 million, with net income per diluted share up five cents to 42 cents. Sales in existing stores in the quarter increased 2.9 percent.


Editor’s Note: This is the first in a series of articles on dollar stores.

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