Dollar stores: It's the thought (and the savings) that counts

Dollar stores, which saw their revenues grow as the economy slowed, are continuing to entice shoppers this holiday season. Be they traditional dollar stores -- everything at Dollar Tree costs a buck -- or lower-end retailers like Family Dollar and Dollar General, they are benefiting from consumers' downward shift and taking advantage of the opportunities they’ve been presented with.

While such stores often are not intended destinations for holiday shoppers, NPD Group chief retail analyst Marshal Cohen said people who began going there for cleaning supplies or other necessities have been picking up holiday products, as well.

"It's not about where the product comes from anymore, it's about what the product is," he said.

Warehouse stores have succeeded by selling bulk items for less per unit, but Cohen said when people have little money to spare, they are more interested in a smaller quantity for less money. That’s where dollar stores fit in.

With smaller footprints than big boxes and lower prices than drugstores, dollar stores use their wide variety of products and their relative ease to navigate to become a new convenience store, Cohen said.

In its 2010 hot retailers list this summer, the National Retail Federation said the extreme discounters have prospered, and continue to see momentum. The group said, “… Almost everybody in the dollar store segment has been growing by leaps and bounds.”

Dollar Tree, Family Dollar and Dollar General have all posted revenue gains this year. According to financial analysis firm Sageworks, Dollar Tree’s revenues increased 14.25 percent for the quarter that ended in October over 2009’s numbers; Dollar General saw a 10.06 percent increase for the same period.

Family Dollar’s saw an 8.03 percent increase in sales from a year earlier in the quarter that ended in August.

Even as the economy has improved, price has remained an important factor for shoppers, said Kathy Grannis, spokeswoman for the National Retail Federation. So dollar stores have showed continued strength during the holiday season.

Often, people go in seeking gift bags or tape and come out – as Paynter did – with much more.

“It may not be top of the line, but it suits their needs just fine,” Grannis said.

Shantaye Pitts, who lives in Atlanta, said she might not buy gifts at the Dollar Tree, but she headed into the store Tuesday morning intending to get lights and other items to decorate her apartment. Pitts said she usually spends $25 to $30 a trip.

Outside, Dollar Tree advertises extended holiday hours. Inside, shelves with candy-filled mugs and snowmen and Santa figurines were picked over and nearly barren.

At Dollar Tree, the average ticket is just under $8, said Timothy Reid, vice president of investor relations for the company. Reid said that increases during the month of December, but he could not say by how much.

Family Dollar’s average ticket, at roughly $10, is higher, but that store offers higher-priced merchandise, including MP3 players and other electronics in addition to $5 or $10 toys and gifts. About 30 percent of the merchandise still costs $1 or less, spokesman Josh Braverman said.

Family Dollar has added more brand names in its aisles and Braverman said higher-income customers who first came in because of the economy have taken notice.

“We’ve really become a destination for value-conscious customers,” he said. “Seasonal has really played an important role in our success.”

Shoppers like Kineisha Lyons and Keisha Walthall are part of that reason. The sisters were at Family Dollar Tuesday looking for gifts for eight children each.

When they left, they had spent $77.05 for 13 of the 16 presents they were seeking, having purchased dolls, cars, books and other items. They know that kids can be tough on toys; decapitation is sad on a $5 doll but perhaps catastrophic on a more expensive one.

“Especially in this economy, it’s a blessing for parents,” Lyons said. “Then if you see a head on the floor a few days later, you don’t feel so bad about it.”

Reid, with Dollar Tree, said part of the appeal for shoppers is the idea that they’re hunting for treasures. The merchandise changes frequently, he said, and customers are often surprised by what they find.

More and more, he said, people come in and buy a gift basket and items to fill it for less than they would spend getting one gift at another store.

“People have learned to shop very, very intelligently,” he said. “I think we’ve all learned to shop for value the past few years. We see an opportunity to see more customers who shop for sales.”