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Dollar Stores Thrive In Tough Times

Apr 1, 2008

Discussions of whether, technically, the nation is or is not in recession, and how long and how deep it might be, are irrelevant, suggests Jeff Green, president and CEO of Jeff Green Partners, a retail consulting company in San Francisco. "The consumer decides," he said.

The latest consumer confidence index and a slew of retailers' recent quarterly reports provide evidence that the consumer has decided. Recession or not, they are feeling the pinch.

"The Consumer Confidence Index continues losing ground," said Lynn Franco, director of the Conference Board Consumer Research Center. "The weakening in consumers' assessment of current conditions, fueled by a combination of less favorable business conditions and a sharp rise in the number of consumers saying jobs are hard to get, suggests that the pace of growth in early 2008 has slowed even further," Franco added.

Any discount store is going to do well in this climate, providing they focus on needs versus wants," said Green. "Dollar stores have the word 'value' all over them, and they will get shopped," he noted, but added, "Their challenge will be to turn those visits into sales."

"A problem with dollar stores is that they are sometimes hurt because the consumer feels their merchandise is substandard," said Britt Beemer, chairman of America's Research Group, a retail consultancy based in Charleston, SC. "Even for a dollar, the product has to have lifecycle. If the consumers believe they are not getting junk, and the product won't break in 30 seconds, the dollar store will benefit," he said.

This wisdom is not lost on Family Dollar Stores Inc., based in Matthews, NC with more than 6,400 stores in 44 states. During a conference call reporting the company's first quarter results, Howard Levine, chairman and CEO, said, "While categories meeting every day consumable needs continued to perform well, our customers were more restrained with their discretionary spending this quarter."

"Given the current economic environment, we do not expect this trend to improve in the near term," Levine continued. "To better reflect our customers' needs in this environment, we are strengthening our assortments in key consumable categories, and shifting our emphasis within discretionary categories."

Without specifically showing its hand, management of rival, Dollar Tree Stores Inc., also referred to the current climate. During that company's fourth quarter conference call in late February, Bob Sasser, president and CEO, said, "The outstanding value that we offer continues to make Dollar Tree extremely relevant to the customer in the face of the current economic climate." Dollar Tree, based in Chesapeake, VA, operates approximately 3,400 stores in 48 states.

Beemer noted that many dollar stores now carry items above the $1 pricepoint. "If those products are well marked and represent a significant discount, and if a majority of the store's products are one dollar or less, the store should do well," he added.

Green agreed. "If the product represents good value, it's irrelevant to the customer if it's more than a dollar. Their brand is price," he said of the dollar store sector, and reiterated: "Their brand equity is only in price." Beemer added, "They are generic. Ask consumers about dollar stores and they rarely distinguish one chain from another."

While discounters are seen as the chief beneficiaries of tough times, Green suggested some discounters would benefit most, while others may not have any advantage. "Wal-Mart, with its stress on low prices, groceries and other consumables, will no doubt be a winner," he said.

He also cited Target, "to a degree." However, TJ Maxx and other apparel discounters may not see results, Green noted.

Topic: Business Strategies

Related Articles: recession 

Article ID: 558

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