Why Dollar Stores Are Coming to a Neighborhood Near You
WHY YOU SHOULD CARE
The middle class will have to make every dollar stretch further in the economic downturn.
By Carly Stern
Nataly Blumberg is a self-proclaimed dollar store aficionado. The native of suburban Great Neck, New York, frequents her local Dollar Tree a few times a month. Spending about $40 on each trip, she’ll stock up on her favorite brands of laundry detergent and cleaning supplies, or hunt for hidden gems like big-brand makeup in colors that have been discontinued.
Blumberg, who works as a marketing manager and identifies as middle income, sees neighbors toting Chanel bags alongside her in the aisles. Although dollar stores historically have been associated with low-income communities, research shows that these stores — like Dollar General and Dollar Tree, which purchased Family Dollar in 2015 — have in fact been quickly gaining ground with shoppers like her.
There are more dollar stores in middle-income ZIP codes than in low- and high-income ZIP codes combined.
That’s according to numbers compiled by Thinknum Media, a data journalism platform that counted roughly 29,000 dollar stores and examined surrounding locations with trackable median income data. It turns out dollar stores are opening in places where they can cater to those making between $50,000 and $75,000 per year, in addition to low-income communities which historically have been their consumer bedrock. This slice of middle-class expansion is emblematic of a broader outgrowth: With more than 30,000 locations of Dollar Tree and Dollar General, there are more dollar stores in the U.S. than the next six biggest retailers — Walmart, Kroger, Costco, Home Depot, CVS and Walgreens — combined.
“You can look at just the cars in the parking lot … and it’s not the mix of cars you’d necessarily expect,” says Joel Rampoldt, a managing director in the retail practice of global consulting firm AlixPartners.
And the next boom for these stores could come soon, amid whispers about an upcoming recession. After all, say experts, the current expansion of dollar stores in middle-income America is an outcome of new converts that stayed faithful after the 2008 recession. This trend wasn’t limited to the U.S.: A similar push occurred in Europe with the chains Aldi and Lidl, Rampoldt notes. People tend to start shopping at cheaper stores in economic downturns and revert to old habits when bank accounts feel flush again, he explains. But customers like Blumberg were able to find enough specific brands they wanted and didn’t buy into the traditional stigma associated with shopping there, he says. “Everyone loves a deal and that’s universal,” says Blumberg. “Laundry detergent is not a status item.”
During downturns, the middle class often shifts its spending habits the most, says Rampoldt. “If you’re poor, you stay poor. If you’re rich, you stay rich,” he says. When people must vigilantly make each dollar stretch further, they’ll pay the sharpest attention to where the best prices are. Competitors might trump them as comprehensive one-stop shops, but dollar stores can supplement specific preferences — for Blumberg, that’s Colgate toothpaste or Hallmark gift cards. “Our stores provide an affordable and convenient fill-in shopping option for our customers in between their weekly or bi-weekly grocery store trips,” says Kayleigh M. Painter, an investor and media relations manager for Dollar Tree.
Dollar stores could also find unlikely aficionados in millennial shoppers who value thrift. And less stigma toward frugality comes as no surprise given that this generation was hit hardest by the 2008 recession and is still in worse financial health than previous generations. “It comes down to the dollars and cents,” says Mike Gnitecki, a millennial-age paramedic who previously didn’t shop at dollar stores but now occasionally visits them.
Dollar Tree and Dollar General have other advantages that help them endure in downturns that cripple other retailers. Dollar stores have relatively low overhead and operating costs, says Rampoldt. Products with long shelf lives allow stores to profit from sales volume — the wide suite of products offered — rather than high weekly sales. Because they offer limited fresh produce, fewer workers are needed to operate them than conventional grocery stores, Walgreens or CVS.
But that also means they create fewer jobs in the communities they serve. What’s more, dollar stores have drawn fierce criticism for crowding out small businesses and traditional grocers precisely due to their low operating costs. And some critics blame them for helping create food deserts with their lack of nutritious fare — though others say dollar stores are a response to economic disarray. This pushback is gaining steam as cities like Tulsa, Kansas City and others have implemented regulations to prevent the clustering of multiple stores in low-income communities. “Nobody wants a dollar store to open in their neighborhood, but when it does open, they shop there,” Rampoldt says.
Therein lies both the blessing and curse inherent to the dollar store. They serve some needs of low-income customers but outprice small local stores. For middle-income shoppers, they serve as a convenient fill-in for inexpensive, go-to household items — when produce and groceries can still be purchased elsewhere — and the drawbacks are less evident. It’s this economic segment that dollar stores have identified as their growth area, and that makes these thrift shops well prepared … no matter when the recession strikes.