Yahoo Finance Is the Dollar Store Dying?
In April, CNBC reported that Family Dollar was closing 1,000 underperforming stores, California-based 99 Cents Only shut down all 371 of its locations and Dollar General’s growth wasn’t living up to previous projections.
The symptoms of the illness plaguing America’s once-thriving dollar stores were unmistakable.
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Stores are drab, chronically understaffed and cluttered with inferior products. Low-cost superstores like Walmart offer a more pleasant, one-stop shopping experience — and perhaps most importantly, very little costs $1 anymore.
Are dollar stores the latest victims of a rapidly changing retail landscape that is leaving them behind, and are they doomed to follow Sears, JCPenney and KMart into history’s dustpan?
GOBankingRates asked the experts.
Walmart Has More Choices, Is More Convenient and Is Often Cheaper
Michael Della Penna, chief strategy officer and resident retail expert of InMarket, which studies consumer buying habits, was featured heavily in the CNBC story about the decline of the dollar store.
He chronicles a retail war in which dollar stores are playing defense against big-box heavyweights that seek to drive them into irrelevance.
“The competition is undeniably heating up and dollar stores have to figure out how to improve the customer experience and their overall value proposition in the face of rapid expansion,” he said. “Discount and dollar stores are launching slightly higher-ticket items to create that one-stop shopping experience, while big-box retailers and grocers debut and enhance their private label lines, like Walmart’s bettergoods, to regain those price-conscious shoppers.”
Marketing strategist and speaker Greg Zakowicz, senior commerce expert with email marketing and SMS platform Omnisend, sees the same dynamic.
“The thorn in their side will be Walmart, which is in a good position to capitalize on overall price increases,” he said. “Because of their buying power and product variety, they can continue to keep prices competitive with dollar stores, making them more appealing to price-conscious dollar store shoppers looking to consolidate trips and expand their product options.”
A Battle for Tomorrow’s Bargain Shopper
If discount retailers can’t provide the convenience of one-stop shopping at a lower cost, they will forfeit the emerging generation of consumers.
“Particularly for younger demographics like Gen Z, the ability to purchase everything on their shopping list in one place significantly streamlines the shopping process and supports their more active lifestyles,” said Della Penna. “Successful chains understand those nuances in behavior and combine value with quality and convenience, which play an important role in driving visitation, purchase and loyalty, to better meet consumers’ dynamic needs. The winners of the value wars will be the ones who both continuously adapt to meet their customers’ needs and ensure their unique value proposition is at the forefront of messaging across every touch point with their target audiences, whether it be value, convenience, quality or customer experience.”
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a Pre-Pandemic Business Model in a Post-Pandemic World
The pandemic forced consumers out of their favorite stores and onto their websites and apps. It was a before-and-after moment for dollar stores, which now seem stuck in the before.
“It became very easy to order whatever you wanted online during COVID, but it came without true expertise or service attached to it,” said consumer brands and retail expert Derek Detenber, chief marketing and merchandising officer for Batteries Plus. “That may be fine for staple items or household needs, but it can be difficult when you need a recommendation or some education so you can buy with confidence and spend your money smartly.”
When the economy reopened, service-focused retailers emphasized their strengths to get people off their e-commerce apps and into physical stores. But dollar stores have the worst of both worlds — the inconvenience of brick-and-mortar without the service or expertise, all with a dwindling value proposition and an unpleasant shopping experience.
“It’s less convenient than ordering online and may not have the value it used to have compared to other online sellers,” said Detenber. “And, the dollar store experience is not one where the staff provides recommendations and expertise. So, it could be losing its space in the retail ecosystem.”
Not All Hope is Lost for Discount Retailers — But It’s Change or Die
Not all analysts accept that discount retailers are doomed to fail.
“No, Dollar Stores are not going away,” said Liz Crawford, a 20-year brand management and consulting industry veteran, author of “The Shopper Economy: The New Way to Achieve Marketplace Success by Turning Behavior into Currency,” analyst and contributing writer for the Path to Purchase Institute and publisher of Shopper Marketing Magazine. “Instead, I believe that the closing of nearly 1,000 Family Dollar stores is the long-coming result of underinvestment.”
“Even Chairman and CEO Rick Dreiling admitted in an analyst call, ‘Many of these [Family Dollar] stores had been underinvested in for years and the capital investment required to fix them could not deliver an acceptable rate of return.'” she continued. “Conversely, Dollar General is planning expansion. What gives? This is reminiscent of Circuit City’s demise and Best Buy’s success in the early 1990s. Circuit City fell prey to its own mismanagement, while Best Buy stayed on top of the changing trends.”
As Long as There’s Income Disparity, the Lowest Possible Price Will Always Have a Market
Aron Bohlig, managing partner at ComCap, a boutique investment bank, agrees there is a market that deep-discount retailers are primed to serve.
“We expect dollar store culture and the appeal of dollar stores as a channel will only expand,” he said. “With inflation, you’ll see more ‘dollar stores’ offering higher price points, but those will still be compelling for consumers. With increasing income disparity in the U.S. and with an increase in logistics efficiency, look for more goods to be distributed through this channel and for more consumers to consider this as a core part of their weekly shopping experience.”
Quynh Mai, CEO and founder of the digital creative agency Qulture, agrees.
“Despite the economic pressures, dollar stores maintain cultural and community significance,” she said. “Many parents depend on these stores for affordable school project supplies and in lower-income communities, these stores are essential sources for basic staples, accessories, and school supplies, providing critical support. Moving forward, dollar stores can maintain their relevance by innovating their business models and enhancing their offerings to meet the evolving needs and preferences of their customers. The coming decade will undoubtedly bring changes, but with strategic adjustments, dollar stores have the possibility of playing a vital role in the communities they serve.”
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This article originally appeared on GOBankingRates.com: Is the Dollar Store Dying?
