Single pricers taking their concept on the road - Extreme Value Retailing - dollar stores

DSN Retailing Today, Nov 24, 2003

The truest version of what is known as dollar stores--chains such as Dollar Tree and 99 Cents Only that sell everything at a low price point at or near $1--are capturing the interest of a growing consumer base in mainstream America.

While numerous morn-and-pop chains and franchises, such as Dollar Discount Stores of America, compete in this niche, the two largest public companies dominate this segment's revenue and, many estimate, store count as well.

Dollar Tree, which sells everything for $1, operates more than 2,500 stores in 47 states, while 99 Cents Only, selling at prices its name implies, is much smaller with 176 stores in four states. Revenue for Dollar Tree rose 17.7% to $2.3 billion last year, while 99 Cents Only sales rose 27.2% to $664 million. For both, operating income grew in the 20% range as they expanded square-footage at 28% or more.

Efficient distribution and adept buying of closeouts and imports have enabled these retailers to raise the bar in the value of items provided at low price points while still making a good profit. Dollar Tree has taken the lead, acquiring numerous competitors in recent years.

As opposed to the prime low-income shopper base of other extreme-value niches, single-pricers attract more shoppers of moderate income drawn to the treasure-hunt aspect of what they can find at a $1 price point. The average transaction is $7 at Dollar Tree and $9 at 99 Cents Only, with a much heavier emphasis on food, including some perishables, at the larger stores operated by 99 Cents Only.

Dollar Tree has changed its format in recent years to operate larger stores at high-traffic freestanding and strip center locations as opposed to its early heritage in malls. Ranging from 8,000 square feet to 10,000 square feet, these stores have allowed the chain to expand in strong sales categories such as food, party and giftware.

Meanwhile, 99 Cents Only has moved beyond its core California market to Nevada, Arizona and Texas. Refinement of the food program has continued, with the company adding a 20-foot gourmet and fancy food section this past year and expanded milk and cooler programs.

"The thing that really sets our company apart is the attention we pay to how well the store is merchandised and how attractive it looks," president Eric Schiffer recently told DSN Retailing Today.

The same could be said for Dollar Tree, which has made its stores attractive, bright and inviting as it opened larger boxes in recent years. The modern look has helped increase shopper penetration of dollar stores, a segment many in the past viewed as offering shoddy goods in dingy locations.

With sales-per-square-foot of $309 and an average store size of 22,000 square feet, 99 Cents Only operates one of the largest and most productive boxes in extreme-value retailing. This is driven largely by its high-traffic food offering, which accounts for 40% of sales. In comparison, food comprises 12% of Dollar Tree sales, with a heavier reliance on impulse gift-type items such as holiday decorations.

Growth prospects remain high, with 99 Cents Only in four states and the near-national Dollar Tree projecting it can more than double its store count. Many expect the number of independents to shrink as these segment leaders expand and win over shoppers.