The Power Of The Dollar (Store)

With low interest rates, high gas prices and a sluggish economy, a dollar doesn’t seem to go very far. So who would think that stores that build their entire business model on selling goods for a dollar would be doing so well? 

While other retailers are struggling, Dollar General, the largest dollar-store chain, posted a 15% gain. According to a Time Magazine article, “Will Dollar Stores Rule The Retail World,” Dollar General is ready to open its 11,000th store. What is it about a store that sells everything from toys to paper products and cleaning supplies that makes it so appealing?

Dollar General, Dollar Tree and Family Dollar enjoy the same type of success and growth. These retailers gained popularity with the 2008 recession, which is another break from other retailers that slowed at the same time. Dollar stores offer a wide variety of necessities at low prices, often just a dollar, which make a paycheck go farther. According to Morningstar, about 40 percent of those who shop dollar stores are on some type of public assistance.

The article contrasts dollar stores with Walmart, the company that wrote the book on discount retailing. Big superstores and big buying power hasn’t made Walmart as successful as dollar stores in sales and growth. The lessons learned can be applied to companies that want to compete with established retail stores in a difficult economy.

When you’re the biggest retailer around, it’s difficult to experience growth like smaller stores. Dollar stores, because of their smaller size and variety of off-brand items in just about every category as a big-box store, can open stores in tighter urban areas, making it easier for lower-income urban dwellers, college students, and families on a budget to access what they need close to home.

Another secret to their success is profit margin. According to the article, dollar stores are able to charge higher prices for off-brands and special purchases of name brands. They may be selling the same products as the larger retailers, but selling smaller versions for the same prices.

Another advantage is low-cost, single pricing. When you walk into a dollar store, just about everything is a dollar.  Whether you’re buying a tube of toothpaste, a bag of chips, nail polish, a kitchen spatula or light bulbs, it’s just a dollar. Customers can load up their baskets and easily add up the cost just by counting the number of items.  Everyone likes a bargain, and at a dollar a pop, you get a lot for a little money. 

While many retailers looked to the Walmart model of big mega-stores with thousands of items and some price variation, it’s an interesting turn of events to see Walmart planning on building smaller neighborhood market stores to compete with dollar stores. Mega-stores are expensive to operate and staff. Dollar stores have tighter aisles and fewer checkout lines. Customers will sacrifice variety and name-brands for lower prices, convenience and products that work without the high-price brand name. This reverse competition is good for everyone, but especially for consumers who have to stretch fewer dollars just to get their necessities.

Photo Source:  Morguefile.com