Dollar Stores Drive Increase in Retail Store Openings

Dollar stores are experiencing a surge in popularity due to the need for more affordable groceries and products in rural areas that are not well-served. This has resulted in a greater number of new stores being opened compared to other retailers.

Since the peak of the pandemic, physical shopping has seen a significant resurgence. Dollar General Corp. and Dollar Tree Inc., the two largest U.S. dollar-store chains, are leading the charge. They anticipate that by the end of the fiscal year in late January, they will have opened a combined total of over 1,300 new stores.

Coresight Research Inc., an advisory firm that specializes in retail and technology, has reported that both Five Below Inc. and TJX Cos. will be opening more than 100 new stores in 2022.

Retail and real-estate analysts have noted that the expansion of dollar stores demonstrates their capacity to succeed in remote locations that are not densely populated enough to draw other major retail chains. Peter Keith, a senior analyst for financial-services company Piper Sandler, stated that dollar stores are able to bring their national purchasing power to areas where the cost of labor and operations is lower than in more urban and suburban areas.

According to Mr. Keith, the goal is to offer convenience and value to customers who live in more rural areas. He believes that they can be more successful than the local grocer in a smaller market.

In the past two decades, the expansion of dollar stores has been remarkable. Coresight Research reports that Dollar General has grown from 5,000 stores in 2001 to 18,800 stores across the United States. Additionally, Dollar Tree acquired Family Dollar Stores Inc. in 2015 and has since added more than 2,400 locations, bringing its total to over 16,000.

The appeal of dollar stores has grown due to high inflation and their relatively low prices. John Mercer, head of global research at Coresight, believes that the expansion of the sector is based on changes in U.S. shopping habits that began before the current economic cycle. Surveys have revealed that millennials and Gen Z are more cost-conscious and prefer to save money on retail and household items rather than spending more on services and experiences.

Consumers are increasingly turning to dollar stores for their grocery needs, according to Mr. Mercer. Coresight surveys have revealed that Dollar General and Dollar Tree are consistently among the most popular retailers for grocery purchases, alongside Walmart Inc., Target Corp., Amazon.com Inc. and Kroger Co.

Dollar General, the largest retailer in the United States by number of physical stores, has been offering perishable items for a few years now and currently has fresh produce in 3,000 of its 18,800 stores, according to Chief Executive Jeff Owen during the company's third-quarter earnings call. He also mentioned that the company plans to expand to an additional 2,000 locations by 2023.

The company has also been working to expand its Popshelf initiative, which was launched in 2020 with the goal of appealing to higher-income shoppers. Popshelf offers a variety of products, including home, craft, toy, and beauty items.

The expansion of dollar stores does not appear to be slowing down. Mr. Owen informed investors that he believes the sector has the potential to add 16,000 stores in the near future.

Brandon Svec, the national director of U.S. retail analytics for CoStar Group Inc., noted that the greatest danger to dollar stores' growth would be a rival, like Walmart, opening a store in the vicinity. However, he pointed out that dollar stores have reduced the risk of competition by focusing on rural areas.

According to Mr. Svec, Dollar General does not face as much competition in secondary markets. He noted that it is difficult to get Amazon delivery the next day in many of these areas.