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While her son, Braydon, 3, perused the toy section, Barnes ticked off a quick
shopping list of toys, cleaning supplies, greeting cards and other household
items she buys at the dollar store instead of the supermarket to help save
money.
"It's a great store. We come here a lot because it's cheap, especially with the
economy," Barnes said, watching as Braydon stabbed at the air with a plastic
sword. "And, he's still at the age where I can get away with the $1 toys."
Business is good at the major dollar stores these days.
Like Barnes, the slow economy and rising prices are causing many consumers to
stretch their buck as far as possible, and what better place to do that than a
dollar store?
"In tougher times, consumers tend to be more price and value conscious and trade
down into the dollar store space," said Patrick McKeever, a senior analyst with
MKM Partners in Greenwich, Conn. "Inflation is making the single price-point
store all that much more attractive to consumers. Here, prices don't go up, and
people appreciate that."
Stores buck retail trend
Dollar stores cater to lower income groups. Some stores offer the same price
point on all items — 99 cents or $1 — while others have various low prices on
their items. The stores range from small independent operations such as 99 Cents
Plus & Beauty Supply in Boca Raton to giant chains including Family Dollar,
which has stores in 44 states.
Rick McAllister, president and chief executive of the Florida Retail Federation,
said the dollar stores are typically found in smaller communities or urban
neighborhoods because they can offer a discount shopping experience for towns
that may not be able to support a larger discount store such as a Target, Kmart
or Wal-Mart.
Although a bad economy means that customers in the lowest economic bracket will
not be able to shop at the dollar stores as often as before, McKeever said those
customers are being replaced by others who are coming to discount retailers
instead of buying items at more expensive or higher-end stores.
"Dollar store trends are much healthier than other areas of retail right now,"
McKeever said. He said many of the dollar store chains are seeing 2 percent to 3
percent same-store sales growth — a key measure for retail stores — whereas some
of their more high-end brethren are seeing growth declines of as much as 8
percent.
Indeed, Goodlettsville, Tenn.-based Dollar General, which is now privately held,
said this month that its second quarter same-store sales increased 10.1 percent
on increased customer traffic and higher average transaction amounts, and that
its quarterly sales increased 11.2 percent from second quarter 2007.
Similarly, Chesapeake, Va.-based Dollar Tree (Nasdaq: DLTR) said in August that
its second quarter same-store sales increased 6.5 percent and its revenue rose
12.5 percent from a year earlier as consumers turned to its stores in a tight
economy.
However, rising inflation also means that a buck doesn't go as far as it used to
for dollar stores trying to keep their prices low.
Surging gasoline prices means restocking stores far from distribution centers
becomes a headache. Higher commodity costs means buying items that used to be a
dollar is suddenly more expensive.
That inflation is driving some of the smaller, locally owned stores out of the
99 cents or $1 price range — and out of business.
"I can't sell anything for a dollar now. Almost everything in the store is now
$1.29 or $1.49," said Mushtaq Sajwani, manager of 99¢ Plus & Beauty Supply in
Boca Raton. "Nobody wants to buy here if it's more expensive.
"Look around: There's nobody inside the store now," he added.
Tricks of the dollar store trade
But the bigger dollar store chains have long been used to working to keep prices
low, and have more leverage when it comes to keeping costs down. As the economy
continues to spiral downward, these companies are quickly adopting new tricks or
stepping up their usual techniques for keeping prices low.
For instance, Josh Braverman, spokesman for Charlotte, N.C.-based Family Dollar
Stores Inc. (NYSE: FDO), said his company has begun making sure its delivery
trucks are full and consolidating trips to mitigate rising fuel costs.
Some stores, such as Family Dollar and Dollar General, sell many of their items
for more than $1, which means they have a little more wiggle room as prices on
commodities go up. Family Dollar, for instance, is offering a 10-pack of socks
for $6.
Single price-point merchants such as Dollar Tree and 99¢ Only Stores (NYSE: NDN)
have added challenges, because they must either find a way to continue selling
items for only 99 cents or $1, or change their business model.
A few weeks ago, 99¢ Only Stores, which is based in City of Commerce, Calif.,
and does not have any locations in Florida, announced its first-ever price
increase of the items it carries — from 99 cents to .9999.
"This nearly one cent price raise will help 99¢ Only Stores offset some of the
increased costs of doing business, including higher fuel and commodity costs,"
Chief Executive Officer Eric Schiffer said in a statement, describing 99¢ Only
Stores as "America's inflation fighter."
Dollar Tree, in comparison, has used other solutions to keep costs down.
It has had to remove certain items, such as motor oil, that got too expensive,
spokeswoman Chelle Davis said. Other items, such as Tic Tacs and Frito Lay
chips, are often replaced with private-label alternatives. A batteries package
was redesigned to be cheaper and to hold one less battery. And a children's
bouncy ball is now shipped deflated from the company that sells them and later
inflated at Dollar Tree's distribution center to cut down on freight costs.
Davis said getting all the logistics to work is a science, but added that Dollar
Tree has been doing this since it opened.
"We definitely think we're right for the times, and know how to offer the things
people need for a cheap price," Davis said.
And analysts are optimistic about how the dollar stores will continue to fare.
"They are in a good position as customers trade down," said Karen Short, senior
consumer analyst at Friedman Billings Ramsey. "They are allowing consumers to
stretch their paycheck."
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