Dollar and General Merchandise Stores

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 7,850 dollar and discount stores in the US sell a wide variety of merchandise at low, fixed price points, often in dollar increments. Merchandise includes everyday necessities and impulse items. By offering a limited number of items per merchandise category, firms maintain purchasing power and keep costs and prices low.

Low Prices Limit Flexibility

The value proposition of a dollar store is based on low, fixed retail price points (“Everything’s $1!”), which limit a company’s flexibility when costs rise.

Inventory Shrinkage and Theft

The operating model for dollar stores, which is based on small stores, crowded shelves overflowing with merchandise, a high number of cash transactions, and minimal staffing, makes operators vulnerable to inventory shrinkage and crime.

Industry size & Structure

The average dollar and discount store company operates out of a single location, employs about 55 workers, and generates about $9 million annually.

    • The dollar and discount store industry consists of about 7,850 firms that operate over 40,000 establishments, employ 430,000 workers and generate about $75 billion annually.
    • The industry is highly concentrated; the top 50 companies account for over 90% of industry revenue.
    • Large firms include Dollar Tree (Family Dollar), Dollar General, and Five Below.
                              Industry Forecast
                              Dollar and General Merchandise Stores Industry Growth
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              May 15, 2022 - Inflationary Pressure Continues
                              • Profit margins at dollar and general merchandise stores are likely to be reduced by inflation. Wholesale inflation rose 11% in April as producer prices keep increasing. Wholesale grocery prices increased 1.5% in April, according to the US Bureau of Labor Statistics. Groceries have become a top seller at many dollar and general merchandise stores.
                              • Retailers' plans to open new locations in 2022 are far outpacing their plans to shutter shops, according to Coresight Research. US retailers having announced just 1,385 store closures, compared with a whopping 3,694 openings, as of April 1. Store opening growth is being driven by dollar chains and discount stores, like Dollar General and TJX.
                              • The parent company of the Dollar Tree and Family Dollar chain of discount stores will be introducing $3 and $5 product bundles in the coming months. The company changed its long-standing $1 price format to $1.25 in November 2021. Many experts say that pandemic-driven, logistics-related cost increases were a key cause of the change. The November initiative had been successfully implemented at all 7,800 of its Dollar Tree-branded stores two months ahead of schedule. Company President and CEO Michael Witynski said that lifting the constraints imposed by the $1 price point has allowed the retailer to bring back popular items that had been discontinued, calling the low-priced consumable merchandise “customer favorites” that are key traffic drivers.
                              • A massive shortage of truckers continues to be a bottleneck for supply chains, according to Bank of America (BofA) Global Research. The shortage is causing skyrocketing shipping costs that affect industries including dollar and general merchandise stores. Shippers surveyed by BofA noted fleet capacity availability drops and elevated prices across the industry, with nearly 60% of respondents expecting shipping rates to rise and 30% expecting capacity to be lower.
                              • Industry leader Dollar Tree has expanded the same-day-delivery pilot program that it launched in partnership with Instacart. The program was launched at 275 locations and is now up to 7,000. Experts say that consumers who initially relied on delivery services largely due to pandemic-related safety concerns continue to do so because of the convenience.
                              • Dollar Tree likely has less room than rivals to manage rising costs, according to industry analysts. Dollar Tree has, until recently, been a true “dollar” store, with a fixed $1 price point. The two other publicly traded "Big 3" industry participants — Family Dollar and Dollar General — keep prices under $10. The Covid-19 pandemic has pushed up transportation rates, workers’ wages, and prices for some raw materials. Many retailers are passing those price increases on to consumers. The challenge, CEO Michael Witynski says, is to continue to find ways to buy products such as holiday decorations, snacks, and craft supplies for around 43 cents, then charge $1 for them.
                              • Rising freight costs are cutting margins at dollar and general merchandise stores. The expense has “reached unprecedented levels as a result of increased demand, limited capacity and shipping delays,” Dollar Tree CEO Michael Witynski told analysts, indicating that spot rates on ocean freight from China were up more than 400% since 2019. The company’s projected cost for freight this year is as much as $200 million more than what it expected just three months ago, he said. Dollar Tree is a top 10 importer among large retailers, bringing in nearly 90,000 40-foot containers annually, so freight has “an outsized impact,” Witynski said. The company is trying a new approach of reserving space on charter vessels. It’s also looking to source more goods within the US. Dollar Tree has also added a section of products dubbed ‘Plus!’ that sell for $3 to $5 — discretionary items such as seasonal merchandise that consumers would still see as a bargain. Witynski said the new concept is lifting sales by 6% at stores where it has been introduced.
                              • Dollar Tree plans to open hundreds of new "combination stores" in an attempt to be a one-stop shop for consumers looking to buy pandemic essentials. Company officials say that the stores combine "Family Dollar’s great value and assortment with Dollar Tree’s thrill of the hunt and fixed price-point — creating a new strategic store format targeted for small towns and rural communities with populations of 3,000 to 4,000. These are markets where the company would traditionally not open a Dollar Tree store alone."
                              Get A Demo

                              Vertical IQ’s Industry Intelligence Platform

                              See for yourself why nearly 40,000 users trust Vertical IQ for their industry research and call preparation needs. Our easy-to-digest industry insights save call preparation time and help differentiate you from the competition.

                              Build valuable, lasting relationships by having smarter conversations -
                              check out Vertical IQ today.

                              Request A Demo