Dollar Store Growth Slowing?

Report says leading players to drive development

COLUMBUS, Ohio -- High growth and geographic expansion will continue to characterize the small-format value-retailing sector during the next five years. Leading companies will continue to get bigger, and smaller players will find it tougher to compete.

However, the picture is not as pretty as it's been in recent years as some big players begin to experience growing pains, reports Retail Forward in the company's recently released Industry Outlook report Dollar Stores and Other Small Format Value Retailers.

The small-format [image-nocss] value-retailing sector has grown from a $31 billion channel five years ago to more than $42 billion today, and channel sales growth will remain solid, according to the report. After surging in recent years, Retail Forward projects sales growth will moderate at an average rate of 5.4% per year through 2009.

Five years ago, the top 10 players represented 44% of industry sales. Today, the new top 10 control nearly two-thirds of sector sales. Retail Forward expects the top 10 players will operate more than 27,000 stores by 2009, up from 20,000 today.

Aggressive new store expansion by the leading players remains the primary growth driver for this sector, stated Nick McCoy, senior consultant with Retail Forward and co-author of the Dollar Stores and Other Small Format Value Retailers report.

While dollar stores and small-format value retailers will continue to grow going forward, same-store sales gains are becoming harder to achieve and some profitability issues are beginning to surface. The sector is operating in a tough environment. Core low- and lower-middle income shoppers are plagued with rising gasoline and food costs as well as high unemployment.

As these core shoppers' budgets get stretched to the limit, we're seeing a reduction in the number of shopping trips and a postponement of discretionary purchases, McCoy said. However, these same economic pressures may lead to more consumers trying the format because everyone loves a bargain and American shoppers increasingly are value-oriented shoppers.

Retail Forward Inc., Columbus, Ohio, is a global management consulting and market research firm specializing in retail intelligence and strategies.