The Mighty Dollars: A Bricks and Mortar Success Story

Retail Real Estate Trend: Will Good Times Be Bad for Bargain

You might call them the mice that roared. They’re the dollar stores – now almost 30,000 nationwide and growing. These price point retailers not only weathered the economic recession but they triumphed, growing their annual sales by 50 percent from 2010-15, compared to the 17 percent notched by retail overall in the same period. And while every week seems to bring news of closing doors and downsizing among bricks and mortars, the dollar niche remains in expansion mode. Dollar General, the top player in this category, is set to open 1,000 new stores this year (that’s 3 per day)! (Read more: http://www.retaildive.com/news/why-dollar-general-will-keep-its-promise-to-build-1k-stores-this-year/434044/)

Demographics Plus Location Equals Dollars for the Dollar Niche
Low- and middle-income shoppers have been these stores’ sweet spot since the first Dollar General opened in 1955 with a variety of wares, all below a $1 price point. As more retailers joined the bargain bandwagon, a location strategy emerged: cluster the stores within a small range for maximum ease of access. It was the reverse of Walmart’s centralization strategy. Consumers who must economize on gas or who rely on public transportation can always find a dollar store close to home or work. The convenience factor also proved a powerful draw for time-starved shoppers at higher income levels.

Not Your Grandpa’s Dollar Store
The crash of 2008 that brought misery to merchants nationwide was a boon to the category. The newly price-conscious turned to the dollars and the stores responded to that rush by pushing their inventories beyond novelties, out-of-date seasonal decorations, discontinued brands and basic staples. To meet the needs of a new class of bargain hunters, they improved their product mix, while retaining their original “treasure hunt” appeal. Consumables – food, household paper goods and cleaning products, health and beauty aids and tobacco products – now comprise three-quarters of the average dollar store’s inventory. Some dollars have added frozen meals, and prepared sandwiches. And 99 Cents Only’s website promises “Fresh produce daily.”

Bargain-priced consumables have drawn another new demographic to the dollars: Millennials. Known for their thriftiness and their preference for experiences over possessions, these sought-after consumers are among the dollar stores’ most loyal customers. In fact, NPD Group reports that at the three biggest dollar chains, 25 percent of purchases were made by Millennials from $100,000-plus households.

Dollar Stores Continue to Boost Commercial Real Estate
Shopping centers shared in the success of the dollar store niche during the recession and that positive connection continues. We are pleased to have 16 dollar stores in our portfolio, all representatives of the major chains. Dollar stores typically seek ten-year leases on 8,000-12,000 SF spaces in properties with strong anchors and high traffic counts. Their solid financial positions and brand names plus their ability to pull in shoppers make them ideal tenants.

Retail Real Estate Trend: The Growth Pace of Dollar Stores May Ease
As the economy strengthens, retail trend watchers predict that in the dollar store category new challenges may cool the growth of dollar stores. Will consumers become less interested in bargain hunting? Will the reduction in SNAP benefits curb less affluent shoppers? Will some stores fall victim to the saturation of these retailers in certain areas and end up cannibalizing each other? What about competition from drug stores who now compete with the dollars in the food and beverage categories? Will Amazon finally chip away at the dollars’ convenience appeal with its same-day delivery of low-priced consumables? (Read more: http://www.cnbc.com/2016/03/21/when-1-can-be-much-more-the-dollar-store-divide.html)

On the positive side, the dollar stores stand to remain immune to the threat of online among their original sweet spot – the less affluent household who does not typically shop online. Their low overhead and the minimal investment required to open a new store are also strengths. And then there’s the loyal Millennial consumer segment. Dollar General, the category leader, just launched a new smaller-store concept catering to the taste and needs of urban Millennials.

We’re keeping an eye on this category. These were the big bricks and mortar bright spot of the last decade and we’re not likely to bet against the dollars.

Investors in Retail Real Estate Are Seeking Expert Advice

Levin Expands Its Third-Party Services to Meet Growing Demand

By Joseph Lowry, SVP-Leasing and Acquisitions

A paradigm shift is underway in retail and in the retail real estate industry. One result is a surge in the demand for third-party services. In the last 28 months, our investment advisory practice took on over 21 new retail leasing and management assignments. We’re cheered by the strong economic momentum both nationally and regionally, but the flip side is that negotiations are getting tougher as investors look for that illusive ironclad deal. It’s a climate in which investors need guidance from leaders in commercial retail real estate. Here are some of our observations on the current state of this dynamic market, plus a quick look at how we’re assisting our investor clients.

Game Changers for Tenants: Online, Mergers and New Competitors
First, let’s look at the tenant side of retail real estate today. The evolution of online shopping undeniably has spurred changes for bricks-and-mortar stores. Merger activity is creating growth in scale for some retailers, but at the same time, consolidation is closing many locations. Preferred anchor categories, like supermarkets, are feeling the heat as discount and high-end grocers challenge their mid-level counterparts and drug, dollar and big-box department stores incorporate food into their inventory. Investors looking for shopping centers need to focus on the quality of every property they consider.

Top-Quality Retail Investment Property is a Scarce Commodity Today
Flight to quality is the hallmark of today’s commercial real estate market. Hundreds of millions of dollars in capital are chasing a limited supply of core institutional-grade properties. As a result, we’re working on more and more deals involving value-add or core-plus properties. And we’re finding that more buyers are willing to look at these asset classes than previously.

Six Factors That Must Be Analyzed Before Investing in a Commercial Property
Whether a property is institutional grade, value-add or core-plus, whether it’s broker-listed or an off-market deal, certain key factors need expert evaluation. These include an analysis of capital requirements, operating statements, rent rolls, debt levels, the condition of the property, and the state of the local market. Savvy investors are relying more and more on third-party providers who can bring a granular level of knowledge to the assessment process.

Retail real estate companies, like Levin, that maintain full in-house capabilities in leasing, accounting, property management, construction management and marketing are best positioned to assist investors in evaluating properties. Our years of hands-on experience in construction management is especially valuable in identifying physical conditions that represent future risk. Our regional focus is also of significant worth, providing strong brokerage connections and up-to-the-minute awareness of both listed – and unlisted – retail real estate investment opportunities.

Levin’s Support Extends Beyond Closing
After closing, many of our clients turn to us to develop and execute a successful operational strategy, assuring maximized property value throughout the entire investment cycle. In fact, a number of the assignments we’ve won in the past two years involve recently traded properties – for both new and repeat clients. These organizations look to us to establish, maintain and improve competitive positioning for their assets.

Today’s commercial retail real estate market holds tremendous opportunities for well-informed investors. Levin’s decades-long experience, encompassing every facet of the industry, makes us a valuable partner throughout the transaction phase and beyond.