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turned to the dollars and the stores responded to that rush by pushing their inventories beyond novelties, out-of-date seasonal decorations, discontinued brands and basic staples.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.

Big Boxes Are Discovering That Small Can Be Beautiful

Retail Real Estate Trend: “Right-Sizing” to Reach New Markets

It’s a retail real estate trend that began nearly a decade ago when Walmart and Home Depot began exploring the concept of smaller stores in or near urban centers. There’s been some bumps in the road, but it now appears that big box retailers can succeed as “small box” retailers. Eager to attract urban-oriented Millennials, as well as affluent empty nesters who have left the exburbs behind, major retailers are shedding square footage and creating accessible pint-sized versions of their massive models.

Unlike their big brothers, these minis range from 20,000 to 50,000 SF – a footprint that offsets the higher rents in densely populated areas. Instead of stocking “everything under one roof,” they offer a curated inventory matching local lifestyles. Companies are betting that proximity, convenience and branding will divert shoppers from their mobile screens and bring them into their neighborhood junior boxes to browse and buy. As regional leaders in commercial retail real estate, this is a trend we’re watching closely.

Hip Enclaves, City Centers, Inner Burbs, College Towns: Junior Boxes Are on the Move
Target, the leading upscale-downscale retailer, is offsetting the reduced traffic in its mammoth suburban stores, by going small in major metro areas like New York City and Chicago, in corporate hubs and in college towns. These new Targets, some at just 20,000 SF, feature hyper localized offerings. The State College, Pa. store, for example, features pantry items for dorm living plus Penn State fan merchandise. The Cupertino, CA Target, meanwhile, aims at Silicon Valley workers with grab-and-go lunches and techie gear. In many pint-sized, urban Targets, shoppers can pick up or return their online orders. Prices are on par with nearby suburban Targets, to avoid cannibalization. And Target is thinking big when it comes to rolling out these stores. There are over 30 already with more planned for 2017. Read more: http://www.wsj.com/articles/target-goes-after-younger-market-with-small-focused-stores-1475597213

Whole Foods has joined this retail real estate trend with a hip brand extension – 365 by Whole Foods Market, located in hot neighborhoods like LA’s Silver Lake and Portland’s Lake Oswego. Like Target’s junior format, these stores are smaller than their suburban counterparts. But unlike Target, prices are generally lower than in their traditional stores. The company sees its brand extension not only as a way to tap a desirable demographic, but as a “lab” for testing new products. Read more: http://www.latimes.com/business/la-fi-365-store-opening-20160525-snap-htmlstory.html

Walmart Tackles the Art of Thinking Small…Again
Walmart was a pioneer of “junior boxes” with its 12,000 SF Walmart Express stores. Launched as a pilot in 2011 and situated in major cities like Chicago, as well as small towns near the retailer’s home turf, the stores featured a limited selection of groceries, household supplies, beauty products and pharmacy. The competition was the dollar and drug stores, the 7/11s and Wawas that drew customers on price and convenience. But Walmart’s supercenter supply chain model simply couldn’t scale down and the 102 unprofitable mini-markets were shuttered last year in a chain-wide downsizing. Read more: http://www.marketwatch.com/story/wal-mart-to-close-walmart-express-stores-as-part-of-reorganization-2016-01-15

The world’s largest retailer hasn’t abandoned the “junior box” concept though. Its focus is now on its Neighborhood Markets. At 28,000 to 60,000 SF, these minis are just one-fifth the size of the typical supercenter. The 600-plus fleet of stores (85-95 more will be added this year) includes some urban locations (for example, Chicago and Minneapolis), but tend to be located in highly accessible inner suburbs. Groceries, household supplies, health and beauty products and pharmacy comprise the inventory, at Walmart’s “always low prices.” Traditional bargains plus greater accessibility, the company believes, will deliver a new wave of shoppers.

Junior Boxes: A Retail Real Estate Trend That’s Here to Stay?
A downsized generation of big boxes is going strong at present, with smaller Home Depot, Bed Bath and Beyond, and Lowes operating in non-traditional settings. It’s a big play to win Millennials and offset flagging traffic in some supercenters. Let’s keep watching.