Sharing my 2 cents about dollar stores

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Saturday, February 2, 2013 | G. Jeffrey Aaron | Categories:
Please join me in the "Way-Back" machine as we travel back to July 2002, when I took notice of the rapid growth of dollar stores and contemptuously compared that growth to dandelions on a well-manicured lawn. Buckle up while we travel ahead to June 2010, when I took notice of the continuation of the trend. Not only were the stores opening here on what seemed like a daily basis, the companies that owned them were delivering strong earnings results. Those financial reports had me seeing the dollar-store blitz in a more positive light. Eleven years after that first column, I'm finding myself in an awkward position. Just when I thought there was no more room in the pool, Family Dollar has squeezed in with one more store. And I'm now finding myself waffling over whether, because of the aforementioned reasons, it's a good thing or a bad thing In case you hadn't noticed, the newest Family Dollar quietly opened on Elmira's Southside on Jan. 26. The 8,300-square-foot store is on West Hudson Street near the discount grocer Aldi. It was built by Ellicott Development, of Buffalo, employs 10 full- and part-timers and brings the North Carolina-based discounter's store count to more than 7,600 locations across the United States. That's right, I didn't stutter. Seventy-six hundred stores! There are now four Family Dollar stores in the area. If you add those four to the seven Dollar General stores operating in and around Elmira, it's easy to see where retailing in the city might be headed - a conglomeration of stores that target lower-incomed "value shoppers." Back in '02, I was concerned with image. My thinking was dollar store companies saw the Twin Tiers as occupants of the lower rungs of the retail shopping ladder. My pride was stung. But over the next eight years, I began to see the discounters in a different light. There's no arguing they're good at what they do - locate in neighborhoods overlooked by full-priced retailers and meet the basic needs of their value-conscious shoppers. Let's take a quick peek at the retailers' latest earnings reports and expansion plans. Dollar General plans to add 635 stores and relocate 550 existing stores to more profitable locations. By year's end, the Tennessee-based retailer hopes to have 11,000 stores. In its third quarter, the company reported sales of $3.96 billion and net income of $207.7 million, versus the $3.6 billion in sales and $171 million in net income reported for the same quarter of 2011. Meanwhile, Family Dollar reported its first-quarter sales increased to $2.42 billion, compared to $2.15 billion in the same quarter last year. Quarterly profit increased to $826.8 million, versus the $757.6 million recorded a year earlier. The company has plans to open between 450 and 500 stores this year. Remember how the latest recession changed consumers' buying habits? Big-box retailers watched as dollar stores gained market share at their expense. And the million-dollar question was if shoppers would go back to their original buying habits when the economy improved. It looks like they haven't, but there are other subtle changes in dollar store shoppers. They've turned away from discretionary items in favor of basic consumables like food, household products, health and beauty aids. In the last five years, Family Dollar says, sales of consumables - which carry a lower profit margin - have increased from 61 percent to 70 percent of total sales at the stores. And because of the shift in customers' preferences, Family Dollar's gross profit margin has slipped from 36 percent a year ago to 35.3 percent this year. In response, the discounter is removing clothing and other discretionary items from its shelves in favor of food items and other consumables. And in a move to boost the level of repeat customers, it's started to sell cigarettes at a selected number of stores. The store on Elmira's Southside is included in the mix of stores selling tobacco products. Family Dollar isn't discussing the sales boost it's getting from customers who come in to buy cigarettes and leave with other items in their shopping bags. But the move shows how nimble companies can quickly adapt to the changing needs of their core customers. It also shows that, like it or not, the dollar store trend will be with us for a long time. G. Jeffrey Aaron is the business writer for the Star-Gazette. His column on business happenings and issues appears weekly on the Sunday business page. To contact him call (607) 271-8288 of e-mail him at jgaaron@gannett.com.
Star-Gazette
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