Will New Tariffs Slow the Dollar Store Roll?

In the world of off-price retail, dollar stores have been quietly outpacing other discount and general merchandise franchises. However, with the looming possibility of additional tariffs affecting the cost of Chinese goods in the near future, the progress of dollar stores may be hit hard. 

Exactly how well are dollar stores performing? “The annual sales of Dollar Tree and Dollar General together are more than those of Macy’s and JC Penney together, of TJX and Ross together, and of Apple Stores – including iTunes,” says Warren Shoulberg, a senior contributor for Forbes. 

In terms of number of storefronts, dollar stores are even more strongly represented than national chain off-pricers who are in their time of glory. According to Shoulberg, “TJX, Ross, Burlington and Big Lots together have less than a third the number of stores that the two big dollar players operate.”

Still, the road to success hasn’t been an easy one for the one-dollar wonders, who haven’t been exempt from their own tough challenges along the way. 

In 2015, Family Dollar—the unfortunate black sheep amongst the sixty-cent stores—was purchased by Dollar Tree as an attempt to drum up reinforcement against the company’s biggest competitor: Dollar General. “Dollar Tree’s $9 billion acquisition of Family Dollar in 2015 after a knock-down-drag-out fight with Dollar General has turned into a big weight on its results as fixing the damaged chain is proving to be harder than expected,” says Phil Wahba, a senior writer at Fortune Magazine.

According to Wahba, Family Dollar’s list of problems included messy and often neglected stores, with poor merchandise selection, and staffing issues. If that wasn’t enough, an additional complication arises with the giants’ separate inventories. While every item shelved at Dollar Tree is priced at $1, Family Dollar sells items at varying prices.

To try and fix the laundry list of problems, Dollar Tree has brought in a new management team, worked to improve inventory flow, start new compensation programs for staff, and improved its private label. It has also renovated 865 stores, closed 195 Family Dollar stores, and turned 354 Family Dollar locations into Dollar Tree stores.

But is that enough to turn around a damaged brand? “As Neil Saunders, a managing director at GlobalData Retail, put in a research note on Thursday, people go to Family Dollar because they need to, not because they want to,” says Wahba.

In the meantime, Dollar General has been continuing a 28-year-long sales-growth streak.As the reigning champion among the dollar stores, Dollar General developed an interesting growth strategy about 15 years ago, that included new storefronts in locations that weren’t already reached by Walmart. 

Today, the company is pushing ahead by increasing fresh food optionsin food deserts, or areas lacking in healthy food options. While the additional options are convenient for consumers, the move has been harmful for many local, independent grocerstrying to fight off the giant.

While the playing field may still not be evened if Chinese tariffs are imposed, it may soften the blow for many small business owners. “The success of these [dollar] stores has a whole lot to do with items costing… a dollar,” says David Brancaccio in a recent Marketplace Morning Report. “About 70 percent of these products come from China, and with an ongoing trade war between the U.S. and China, this could mean higher prices will be passed down to consumers before long.”

In the report, reporter Reema Khrais explains that consumers can expect to see more stores stocking off-brand items, or a slimming down of the usual quantity or size of products, instead of price increases. “The trade work comes at a time when dollar stores are doing well they thrived in the years following the recession and have grown ever since. Especially in rural areas. And now the tariffs could slow down that growth,” he says.

Boost your own store’s single digit offerings by sourcing products at the upcoming OFFPRICE Show, February 3-6, 2019, in Las Vegas, or online at OFFPRICE365. For questions, contact Mikaela Kornowski at 262-754-6910.

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