SEATTLE -- As of mid-year 2011, the combined store count of the four major dollar store chains--Dollar General, Dollar Tree, Family Dollar and 99 Cents Only--has surpassed that of the three biggest national drugstore chains--Walgreens, CVS and Rite Aid, according to a new study released by Colliers International.
The white paper, "Dollar Days: How Dollar Stores are Growing in a Weak Economy," noted that the rapid expansion of this segment is part of the larger lesson learned by retailers during the recent recession: consumers are looking for value.
"The rapid evaporation of wealth (both real and perceived), has profoundly changed the way Americans shop and how they define value," said Ann Natunewicz, national manager of U.S. Retail Research for Colliers International. "Dollar stores now serve a larger consumer base, which is fueling unprecedented growth in dollar store leasing and a significant shift in the types of retail space they take. The Colliers study offers important insights about the success of the dollar store market and its impact on commercial real estate."
The four national chains--Dollar General, Dollar Tree, Family Dollar and 99 Cents Only stores--now operate approximately 21,500 locations in the United States, more than the combined stores of the three biggest drugstore chains. Typical dollar stores occupy an average footprint of 7,000 to 10,000 square feet, although some newer prototypes exceed 20,000 square feet.
Long known for the value they provide with convenience positioning, edited assortments and low prices, dollar stores' strong earnings and aggressive store expansion/remodel programs have made them extremely popular with landlords and property investors, the report said.
Based on the analysis of the portfolios of the four national dollar store chains, along with reviewing transactions brokered by Colliers' retail professionals, the study revealed the factors behind this current boom sector in U.S. retail leasing.
Key findings:
Dollar store evolution = Merchandising revolution: Landlords recognize that as long as trading down and pinching pennies stays fashionable, any and all merchants offering "value" have more cachet. Dollar stores' expanded food offerings have increased customer trip frequency, which generates positive spillover effects for the rest of the property. Dollar stores have upgraded both the look of their stores and the merchandise presentation, increasing their appeal to a broader demographic.
"Dollar stores ... product selection and price points compete favorably with the big-box stores," said Natunewicz. "While the dollar stores are moving into more desirable locations, they are generally able to maintain aggressive deal terms."
Savvy site selection = Dollar stores go "main street": Dollar stores are becoming a more accepted tenant and are moving into increasingly better real-estate locations impacted by economy-driven vacancies, said the report. Landlords in smaller markets often lease to a predominantly local tenant mix, so adding a large, national credit tenant can reenergize a leasing effort and reassure lenders of a property's viability.
More aggressive real estate programs = Accelerated absorption: Grocer and supercenters frequently restrict landlords from leasing space to dollar stores within a center they anchor. This trend is pushing dollar stores to locate into larger projects, lease in better-quality real-estate areas, or to build new ground-up locations, the report said.
Natunewicz said that she sees the potential for even more expansion. "The convenience they provide--bringing better products at lower prices closer to the consumer--helps dollar stores to better serve existing customers and attract new ones. Retail is habit-forming; the longer shoppers patronize a particular store or category, the more likely it is to become a permanent shopping destination."
Click here to view the complete report.
Seattle-based Colliers International is a major commercial real-estate services company. A subsidiary of FirstService Corp., it focuses on accelerating success for its clients by providing a range of services to real-estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and research.
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