- Dollar Tree is opening 650 stores this year in the midst of the biggest wave of retail bankruptcies and store closures in decades.
- The company is largely immune from the threat of Amazon due to the combination of value, convenience, and “treasure hunt” shopping experiences that it offers customers, according to Moody’s.
- We visited a Dollar Tree store in Richmond, Virginia, and it was in total disarray.
Dollar stores are thriving and opening hundreds of new locations in the midst of the biggest wave of retail bankruptcies and store closures in decades.
The stores’ success boils down to a combination of three factors that are nearly impossible to replicate online: low prices, convenience, and a “treasure hunt” shopping experience, according to Moody’s Investors Service.
We visited Dollar Tree, one of the top dollar stores in the US, to find out how it’s luring so many shoppers when other retailers are in decline.
We were expecting to find a no-frills shopping experience, but we were shocked to find the store in total disarray:
Dollar Tree is the biggest dollar chain in the US in terms of locations, with more than 14,700 stores.
When we visited one of the company’s stores in Richmond, Virginia, we found one of the doors at the entrance boarded up with cardboard.
Inside, we found more cardboard. Dozens of boxes lined the aisles.
The boxes served as displays for misplaced merchandise and abandoned shopping baskets.
They also partially blocked the windows …
… and prevented shoppers from navigating around tight corners.
But the mess didn’t appear to bother anyone at the store, which was busy with at least a dozen customers while we were there.
The main draw to dollar stores is the low prices.
At Dollar Tree, everything costs $US1 or less.
These prices are generally 20% to 40% below grocery and drug stores, according to Moody’s.
Dollar Tree’s prices are competitive with online retailers like Amazon as well.
Due to the cost of shipping, it’s not economical for e-commerce companies to compete with dollar stores on items costing less than $US10.
The stores’ value proposition attracts mostly low-income households, but they also have a “growing acceptance by the middle class,” according to Moody’s.
Another major draw for Dollar Tree is convenience.
The stores are relatively small at about 7,000 square feet, or roughly 15 times smaller than the average Walmart store.
That makes them easy to shop, especially for quick trips to pick up a small number of items.
Shoppers also love Dollar Tree for the “treasure hunt” shopping experience its stores provide, according to Moody’s.
“The treasure hunt shopping that these stores offer can’t be replicated by e-commerce,” according to Moody’s.
Dollar Tree’s breadth of constantly changing seasonal merchandise, which accounts for about half of the company’s revenues, means that shoppers can often find something new at the store with each trip.
The total disarray in parts of the store could also contribute to the “treasure hunt” experience, since shoppers have to physically move boxes to access merchandise in some cases.
The business model is working for Dollar Tree.
In its most recent quarter, overall sales grew 13% to $US6.4 billion. Same-store sales for the Dollar Tree banner rose nearly 4%, driven by increases in shopper traffic and spending.
This strength stems in part from the fact that the poorest Americans can’t afford to shop anywhere but dollar stores, according to Morgan Stanley analysts.
“We think a ‘Goldilocks’ scenario is playing out for the Dollar Stores: low end consumer health continues to improve … while likely not improving so much as to cause significant trade-up,” analysts wrote in a note last month.
Dollar Tree and its biggest competitor, Dollar General, have recently been adding more consumables — such as food, beverage, and household products — to their stores, according to Moody’s.
The focus on these categories was evident in the Dollar Tree we visited, as the shelves featuring these products were among the most organised in the entire store.
Elsewhere, the store was cluttered with abandoned carts and, of course, more boxes.
When it was time to check out, we found only one check-out register in operation.
One of the registers was blocked by a tower of boxes.
Business Insider Emails & Alerts
Site highlights each day to your inbox.