Dollar Stores Remain Retail Success Story, Continue to Defy Online Disruption
Strategy of Expanding into Untapped, Low-Density Areas Minimizes Online Threat, Drives Sales Growth and Supports Store Expansion
As the convenience of online shopping continues to propel its growth at the expense of some brick-and-mortar retail locations, one corner of the traditional retail market seems to be expanding along just fine: dollar stores.
Dollar General Corp. (NYSE:DG) and Dollar Tree Inc. (NYSE:DLTR) continue rolling out hundreds of new stores each quarter -- and both announced plans to continue to do so next year.
"With our strong stores growth we anticipate that 75% of the U.S. population will be within five miles of a Dollar General by the end of fiscal 2017," Todd Vasos, CEO of Dollar General told shareholders this past week. "Our range of formats, from 3,500 square feet to 16,000 square feet, allows Dollar General to capture growth opportunities in the areas ranging from rural to metro location."
Dollar General said it completed 634 real estate projects last quarter, including opening 470 new stores.
In 2018, Dollar General said it expects to open 900 new stores, remodel 1,000 existing store locations, and relocate about 100 stores. That's about 2,000 projects in total -- essentially the same pace as the last two years, far exceeding projected store openings by most retailers.
"With solid new store productivity, we have the opportunity to significantly increase our mature store remodel program with the goal to touch each location approximately every seven to 10 years," Vasos said.
Dollar General rival Dollar Tree has been on a similar growth path, but with fewer store openings. It opened a total of 169 new stores, 99 Dollar Tree and 70 Family Dollars this past quarter. It relocated or expanded 23 stores, 19 Dollar Trees and four Family Dollars. It renovated 191 Family Dollar stores for a total of 383 projects during the quarter.
"We ended our third quarter this year with a total of 565 more Dollar Tree stores than the same time one year ago," said Gary Philbin, president of Dollar Tree.
"We are a company that's going to grow hundreds of stores each year when other retailers are potentially pulling back. I think it's still a great opportunity for us to deliver value and convenience in this sector, which I think is the place to be," he said.
Shares of Dollar Tree and Dollar General are up about +20% and +23% year over year, respectively, according to Nicholas Supple, a quantitative analyst with CoStar Portfolio Strategy. Buttressing the increase in share price, both stores posted quarterly results showing same-store sales growth about 2%.
"Both stores continue to rely on brick-and-mortar expansion to fuel this growth, without a significant online presence," Supple said.
Together, these two brands lease an estimated 260 million square feet of retail space in the U.S.
That's an impressive sum -- especially considering the average store size is below 10,000 square feet, making for a total of over 28,000 retail locations in the U.S alone.
"Dollar stores have been able to achieve this growth and avoid the pricing war seen between large box grocers by targeting a lower-income and low-density segment of the market that online stores have not been able to penetrate," Supple said.
"By focusing on (opening stores in) rural areas where shipping time and costs inhibit the online purchase of everyday consumables like soap or detergent, these stores benefit from a natural barrier to online entry."