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3 Ways Dollar Stores Are Disrupting the Retail Space

3 Ways Dollar Stores Are Disrupting the Retail Space

In an age when many retailers are feeling the pressure from eCommerce giant Amazon, there is growth sprouting from a very unlikely segment: dollar stores. These discount retailers are not only expanding, but they’re also dominating brick-and-mortar retail. And while many physical stores are closing their doors, leading dollar store brands like Dollar General, Dollar Tree and Family Dollar are all showing impressive growth – opening a total of over 1,800 stores in 2017 between the three brands.

While some industry experts may not find the stores as a competitor, it’s clear from their growing annual sales figures that shoppers do not agree. From low prices to convenience and the “thrill of the hunt,” there are three key ways that dollar stores are disrupting the retail space and transforming the shopping experience.

The Dollar Store Shopper

Dollar store shoppers are a diverse group, as the discount channel reaches multiple generations and households with varying income levels. Surprisingly, 25% of the shoppers at the three biggest dollar chains are Millennials from households earning $100,000 or more per year, as reported by Retail Dive.

However, the majority of shoppers are from low-income households, with Family Dollar and Dollar General shoppers earning approximately $8,000 less per year ($44,972 and $45,640, respectively) than individuals shopping at larger competitors such as Walmart. Shoppers in this range often cite the distance traveled, cost of gas and the time spent shopping as critical factors that drive their choice to shop at discounters with a smaller footprint.

It’s also important to note that these digitally-savvy individuals prefer online coupons more than the average shopper. In fact, digital coupon redemption in the dollar store channel increased by over 276% in 2017, according to June 2018 data from Inmar. The same study found that 61% of these shoppers were more likely to use an app from a dollar store if it offered mobile coupons, and 75% of them want personalized coupons.

Combined, these characteristics and preferences represent a shopper who values low prices and convenience when making purchase decisions.

3 Key Ways Dollar Stores Are Changing Retail

The emergence of the dollar store is fundamentally changing the way shoppers think about their experiences. Instead of extended shopping trips at larger retailers like Walmart or online purchases, they are continually turning to the smaller, more local dollar stores for their daily purchases. According to Moody’s Investor Service, this shift in retail can be attributed to three key factors: low prices, convenience and a “treasure hunt” shopping experience.

1. Low Prices

Price is a top concern for lower-income shoppers, and dollar stores offer affordable options that fit their budget. Some stores sell items for $1 or less, like Dollar Tree, while others sell most of their merchandise for under $10. Dollar General, for example, offers prices that are 20-40% lower than grocery and drug stores, which appeals to those who prefer cost-conscious shopping. This is possible because dollar stores sell products in smaller quantities, which keeps costs low.

Their low prices, however, are leading other retailers to cut theirs as well. Some are offering dollar sections within their store to attract discount shoppers, while others have created entirely new store concepts to directly compete with the chains. In 2011, Walmart launched its first Walmart Express store, which featured lower prices and a smaller footprint. But the experiment was unsuccessful, so the retailer closed its 102 locations and sold 41 of them to Dollar General in 2016.

2. Convenient Shopping

Today’s shoppers are extremely busy, making it crucial for them to quickly find and purchase the items they need. With their smaller formats and convenient locations, dollar stores are particularly well-suited for this type of immediate shopping. All three leading dollar chains aim to open their stores closer to lower-income neighborhoods than larger rivals, such as Walmart. Dollar General stores, for example, are roughly 7,300 sq. ft.; hence, the average shopping trip to its store lasts no more than 10 minutes.

Adding to the convenience factor, some stores have rolled out digital apps that enhance the shopping experience. Dollar General recently introduced their DG Go! app, allowing shoppers to scan items as they shop and pay at self-checkout kiosks. Ten stores in the Nashville, TN, are currently using the scan-and-go technology, enabling shoppers to bypass lengthy checkout lines.

As convenience tops the list for discount shoppers, other retailers are making adjustments to account for the micro shopping trip. Many have implemented self-scanning checkout lines to provide a frictionless shopping experience. Some grocery retailers, like Publix and Kroger, have began offering click-and-collect services, which allow shoppers to order items online and pick them up at the store. And others have focused on creating more efficient store designs – reimagining fresh perimeter categories and placing grab-and-go snacks, prepared meals and even wine closer to the store entrance.

3. “Treasure Hunt” Shopping Experience

Many dollar stores have capitalized on the thrill of the treasure hunt – the ability to discover great deals or products that are only available for a limited time. This strategy is powerful (and addictive) for shoppers, and usually leads to on-the-spot conversions. Most shoppers are drawn to Dollar Tree for the “treasure hunt” experience it provides. And although many dollar stores are aiming for cleaner aisles, the current layout actually adds to the experience.

According to Moody’s, treasure hunt shopping is hard to replicate, especially for online retailers. However, some have given it a try. The Target Dollar Spot, also known as Bullseye’s Playground, is stocked with an assortment of small, low-price items ranging from $1-$5. The selection changes seasonally, and the layout gives a “treasure hunt” feel. Lidl also leverages the treasure hunt mentality with “Lidl Surprises,” which include an assortment of nonfood items that are available in limited quantities and rotated weekly.

The rapid growth of dollar stores is likely to continue transforming the retail space, but retailers have an opportunity to keep pace with, or even outperform, this channel. Larger retailers like Target and Walmart are already experimenting with different ways to compete with them. And by investing in lower prices, leveraging tools and strategies that increase convenience and finding unique ways to augment the shopping experience, other retailers can attract more discount shoppers and go head-to-head with dollar stores.