Study: Dollar store boom good for retail landlords

Seattle -- The combined store count of the four national dollar store (or extreme value) chains — Dollar General, Dollar Tree, Family Dollar and 99 Cents Only — has now surpassed that of the three biggest national drugstore chains (Walgreens, CVS, and Rite Aid), according to a new report  by Colliers International, the third-largest commercial real estate services company in the world. The white paper, “Dollar Days: How Dollar Stores are Growing in a Weak Economy,” offers insights about the success of the dollar store market and its impact on commercial real estate.

The four chains now operate approximately 21,500 locations in the United States — more than the combined stores of the three biggest drugstore chains. Typical dollar stores occupy an average footprint of 7,000 to 10,000 sq. ft. although some newer prototypes exceed 20,000 sq. ft., according to the report.

"The rapid evaporation of wealth (both real and perceived), has profoundly changed the way Americans shop and how they define value," according to Ann Natunewicz, national manager of U.S. retail research for Colliers International. "Dollar stores now serve a larger consumer base, which is fueling unprecedented growth in dollar store leasing and a significant shift in the types of retail space they take.’

Among the report’s key findings:

  • Landlords recognize that as long as trading down and pinching pennies stays fashionable, any and all merchants offering "value" have more cachet. Dollar stores' expanded food offerings have increased customer trip frequency, which generates positive spillover effects for the rest of the property. Dollar stores have upgraded both the look of their stores and the merchandise presentation, increasing their appeal to a broader demographic.

"Dollar stores are big business now," said Natunewicz. "Their product selection and price points compete favorably with the big-box stores. While the dollar stores are moving into more desirable locations, they are generally able to maintain aggressive deal terms."

  • Dollar stores are becoming a more accepted tenant and are moving into increasingly better real estate locations impacted by economy-driven vacancies. Landlords in smaller markets often lease to a predominantly local tenant mix, so adding a large, national credit tenant can reenergize a leasing effort and reassure lenders of a property's viability.
  • Grocer and supercenters frequently restrict landlords from leasing space to dollar stores within a center they anchor. This trend is pushing dollar stores to locate into larger projects, lease in better-quality real estate areas, or to build new ground-up locations.

Natunewicz sees the potential for even more expansion: "The convenience they provide — bringing better products at lower prices closer to the consumer — helps dollar stores to better serve existing customers and attract new ones. Retail is habit-forming; the longer shoppers patronize a particular store or category, the more likely it is to become a permanent shopping destination."

Click here for the complete PDF version of the eight-page report.