Dollar Stores vs Everybody Else

The dollar stores (like Dollar General and Dollar Tree) are increasingly appealing to shoppers across the economic spectrum.

One reason is, of course, price. Many dollar stores carry national brands at $1, a distinct price differential vs even the discounters like Walmart, let alone supermarkets and other retailers.

Another key reason, unrelated to price, is that dollar stores are smaller than their giant counterparts. Shoppers can run in, scoop up a few items, and scoot out again much more quickly if they visit a dollar store instead of one of the giant supercenters or supermarkets. No wonder Dollar General's slogan is "Save time. Save money. Every day!"

It's true that middle-income consumers are feeling strapped and looking to pinch pennies where possible. Dollar stores are a good place to buy household items that aren't visible to peers. Who's going to notice if that detergent comes from Dollar Tree or Safeway? In some cases, dollar stores are located in shopping strips that contain supermarkets or in areas close to the big-box stores, convenient for a quick trip for some household necessity.

For the past decade, researchers and analysts have talked about the problems of retailers being positioned in the middle--neither luxury store nor super-discount store, a middle-of-the-road problem that leaves them vulnerable to competitors at either extreme. And in fact, because dollar stores are clearly positioned as low-price alternatives to other retailers, shoppers know exactly what to expect and have a compelling reason to go there on occasion. Similarly, shoppers choose Nordstrom or other high-end store when they want something special or want status-symbol products.

Once the economy begins to improve--in the coming months or, worst case, a year or more from now--will shoppers who've discovered dollar stores continue to buy there? My opinion: If the dollar stores are conveniently located and stock name-brand goods, middle-class consumers will keep going back for staple items. However, if the price of gas plummets as consumer income rises, the dollar stores will have a big fight on their hands: Walmart, Target, and others will compete mightily for those dollars.