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Retail Trends

Power Players Small-Format Value

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Discount retailers were the primary beneficiaries of the burst housing bubble and the nation’s subsequent economic meltdown five years ago. Dollar stores drew newly frugal shoppers, proving so adept at offering bargains that they siphoned business from big-box rivals. In-town locations and the expansion of grocery merchandise helped generate unprecedented growth. That very growth, however, may be dimming their success as markets become saturated, rivals locate stores closer to each other and consumers grow weary of shopping so frequently for small quantities.

It’s not surprising that the national dollar store chains are pushing into so-called “sin merchandise” — alcohol and tobacco products — generally associated with convenience stores. Family Dollar Stores made the move in a major way over the last 12 months, introducing tobacco products in nearly 90 percent of its stores.

Dollar General plans to open its 11,000th store this year, giving it more units than any other merchandise-selling retailer. The retailer will also begin offering cigarettes and other tobacco products in at least half the stores in its 40-state territory. Dollar General has been testing the sale of alcoholic beverages for about three years, but has not made public any decision to end the test or roll it out to more locations. Discussing the pros and cons of adding “sin products,” Dollar General CFO David Tehle explained to securities analysts and investors, “While they are experiencing greater shrink, overall, these high-value SKUs are driving increased sales and higher-margin dollars.”

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