discount store

Discount & Dollar Retailers

Industry Insight

Date February 2019

Prospective Values - Discount and Dollar Stores

Current Trends

  • Dollar stores’ growth continues with expected holiday sales growth of 4.3% to 4.8% and e-commerce growth of 17% to 22% for 2018
  • Market expansion continues as industry leader Dollar General plans to open 975 new stores, remodel 1,000 stores, and relocate 100 stores in fiscal 2019
  • U.S. personal income, which drives consumer decision making, increased 4.2% in November 2018 over 2017
  • Dollar and Variety Stores’ industry revenue is expected to grow at an annualized rate of 0.8% over the next five years


Approximate Net Recovery on Cost


Dollar store markets and assortments expanding: The continued success of dollar and discount stores allowed segment retailers to explore expansion into new markets and increase their inventory selections in 2018. Industry leader Dollar Tree, which also operates Family Dollar, saw a third quarter 2018 consolidated comparable sales increase of 1.0 percent. The Dollar Tree concept has performed better (2.3 percent) than Family Dollar, which was negative 0.4 percent both for the quarter and year-to-date period as it continues to struggle with lower margins as a result of increased discounting and inventory management challenges. For the same period, Dollar General’s net sales increased 8.7 percent and same-store sales increased 2.8 percent. In addition to positive comp trends, information released by market research company NPD Group (NPD) also noted that the average amount spent by dollar store customers has increased over the past year.

Together, Dollar General and Dollar Tree represent over half of Dollar Store industry revenue. For 2018, more than 40 percent of consumers told NPD that they planned to shop at a dollar store during the holiday season. Competitor, Five Below, in particular performed very well with a comp store sales increase of 4.9 percent for the holiday selling period. Dollar and discount department store chains jumped to take advantage of the holiday toy market share left behind in the wake of the Toys “R” Us liquidation. In particular, Target almost doubled its assortment of toys over last year, and Walmart expanded its toy selection by 30 percent in physical stores and by 40 percent online.

In a bid to compete with discount superstores like Walmart, dollar stores have continued to offer more food items, including packaged and canned goods, and have also moved to take advantage of the success of the cosmetics space by incorporating more makeup and beauty products in their assortments. Both Dollar Tree and Dollar General have updated store designs to create more a convenience-store-type atmosphere, where grab-and-go food and coffee stations are available for customers. According to retail analyst Nick Egelanian, president of consultant firm, SiteWorks International, “the dollar store industry has really become the ‘mini-grocery store’ industry today. The stores are now approximately 90 percent consumables and are geared to working class, budget-minded consumers.

One factor for lenders in this space to keep in mind as levels of food and grocery items represent a larger percentage of dollar stores’ inventory is that perishability is a major factor in dispositions. Inventory that is at (or near) its expiration or “use-by” date may require additional discounting to sell through quickly in a liquidation scenario, and inventory with expired use-by dates would likely be unsalable.

Economic climate drives sales: The target consumer of dollar stores is typically budget-minded, and is looking to take advantage of the value-pricing model offered by discount and dollar stores. Fiscal trends may predict discount and dollar store volume, and the segment is more apt to benefit from economic downturns and higher jobless rates. The U.S. unemployment rate was historically low in 2018, but increased slightly to 3.9 percent in December 2018 from a 49-year low of 3.7 percent in November 2018.

Data from the Bureau of Economic Analysis shows that per-capita disposable income is expected to grow at an annualized rate of 1.3 percent over the next five years. IBISWorld expects that dollar and variety stores’ industry revenue will grow at an annualized rate of 0.8 percent over the same period, including growth of 0.8 percent in 2019. To the extent that the unemployment rate rises, or the country faces future government shutdowns or other economic pressures, discount and dollar stores may benefit as they pick up opportunistic shoppers trying to make ends meet.