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 Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

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

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

Industry Profile Excerpts

Industry Overview

The 8,057 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 67 workers, and generates about $9 million annually.

    • The dollar and discount store industry consists of about 8,060 firms that operate over 45,000 establishments, employ 540,000 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

                              Recent Developments

                              May 14, 2024 - Producer Prices Fall Slightly
                              • According to the Bureau of Labor Statistics (BLS), producer prices for other general merchandise retailers, which include dollar and general merchandise stores, have fallen by 1% in March 2024 compared to a year ago. Employment and wages have grown for general merchandise retailers, with an increase of 5.7% and 1.6%, respectively, from March 2023 to March 2024. In a competitive labor market, wages for the industry have increased by around 20% from 2019 to 2024, per the BLS.
                              • A new UBS report in Retail Dive forecasts that 45,000 retail stores may close in upcoming years as online sales gain share. Online retail penetration is expected to rise to 26% from 21%, with retail sales growth of 4% by 2028, as the industry focuses more on fulfillment and distribution centers. If the closures occur, USB said the total number of stores in the US will fall from 958,533 to 913,500. Other factors driving store closures include a tighter lending environment, higher operational costs, and consumers spending more on services than goods. The report stated that sporting goods, clothing, consumer electronics, home furnishings, hobby, book, and music stores have closed the most locations since the first quarter of 2019. Still, retailers can incorporate existing stores as an important piece of their omnichannel capabilities. Per the report, “Our analysis assumes that stores remain an important part of the overall retail ecosystem for retailers and consumers. In the simplest terms, stores serve as hubs of fulfillment and support distribution logistics. This is increasingly more important as consumers are becoming more demanding for convenience or immediate deliveries.”
                              • According to a new ConsumerWise report from McKinsey, consumers continue to “trade down,” changing the type or quantity of purchases for better pricing and value, in Q1 2024. About 76% of respondents reported engaging in trade-down actions in Q1 2024, compared to 77% in Q4 2023. Younger consumers tended to trade down more often than older consumers, while low and middle-income consumers traded down more frequently than high-income consumers, per the report. The report also shows that the percentage of consumers using the “buy now, pay later” option has remained mostly the same in Q1 compared to the previous quarter. Additionally, fewer consumers are delaying their purchases, with only 30% doing so in Q1 compared to 35% in Q4.
                              • Dollar stores, discount retailers, and auto parts retailers are expected to dominate store openings in 2024, according to a new Northmarq report titled "Top 100: Tenant Expansion Trends" in Chain Store Age. The report includes Dollar General's plans to open 800 new stores and remodel 1,500 stores in 2024. The expansion plan includes more stores in rural areas and more large-format stores. The retailer's expansion plan includes 30 PopShelf brand openings and 15 new stores in Mexico. According to CEO Todd Vasos in a recent earnings call, "This is a modest slow down compared to the number of projects in recent years, which we believe is prudent in this environment." Dollar General reported higher than expected third-quarter revenue and earnings in Q3 as price-conscious shoppers seek savings but noted a problem with inventory shrink. Vasos has outlined plans to boost upfront store staff in the checkout area to curb shrink.
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