Dollar stores proliferate, especially in rural Idaho

Sean Olson//July 26, 2013

Dollar stores proliferate, especially in rural Idaho

Sean Olson//July 26, 2013

Mark Schlag stands in front of a Boise Dollar Tree. The dollar store business expanded during the recession, and Idaho got the bulk of its 13 new stores in more rural areas. Photo by Pete Grady
Mark Schlag, a real estate broker with Thornton Oliver Keller, stands in front of a Boise Dollar Tree. The dollar store business expanded during the recession, and Idaho got the bulk of its 13 new stores in more rural areas. Photo by Pete Grady

Dollar stores became a notable retail exception during the national recession, aggressively rolling out new stores as other retail slowed or regressed.

The enthusiasm for dollar stores doesn’t appear to be waning even as the economy recovers. Hundreds of new stores are in the pipeline nationwide, and top dollar stores continue to expand in Idaho.

“We believe that 5 (percent) to 7 percent annual net store growth is a sustainable and manageable growth rate at Family Dollar,” said Bryn R. Winburn, a spokeswoman for North Carolina-based Family Dollar Stores Inc. “Today, we have targeted over 10,000 new store opportunities, and we believe that, over time, we have the potential to double the size of our chain.”

Since 2008, Family Dollar has rolled out 13 new stores in Idaho. While some have been in urban areas like Boise, many of the businesses have opened in more rural settings. Driggs, Challis, Malad City, Arco, Filer and Salmon, for example, have all gotten new Family Dollar stores. There are about 40 Family Dollar stores in southern Idaho.

Part of Family Dollar’s strategy is to locate in rural markets, Winburn said.

Nationally, the retailers Family Dollar, Dollar Tree, and Dollar General dominate the dollar store landscape. The three giants have 21,000 stores in the U.S. between them and have a growth rate of 5 percent to 7 percent annually – or between 1,400 and 1,500 stores each year.

Tennessee-based Dollar General has conducted its own comprehensive real estate analysis based on local market demographics and existing competition. That national research concurs with Family Dollar’s view that there is room for about 10,000 more dollar stores in the U.S.

Thornton Oliver Keller commercial broker Mark Schlag said the expansion of dollar stores in Idaho came a little later than in other markets, but it made sense that consumers and landlords would be looking for the national chains during the recession.

“Through the real estate recession, from a consumer standpoint, those stores made a lot of sense,” he said, referring to their low prices.

Winburn said a new distribution center in St. George, Utah, which opened in May, “has helped us to further expand into Idaho.”

Dollar stores were one of the few retailers actively expanding during the Great Recession. Their business model benefited from consumers being more value-conscious, and they were able to capitalize on the depressed real estate market to capture attractive rents.

Schlag said dollar stores have had excellent opportunities looking for space in recent years, as the competition for commercial retail has been low.

Lew Goldman, a Colliers International real estate broker who represents Family Dollar in Idaho, declined to comment.

The success during the recession has put dollar stores on many maps. Colliers estimates in a study that dollar stores overtook drug stores in volume in 2011.

“The economy was a nice backdrop for them to accelerate market share gains, particularly from the more middle-income customers,” said Peter Keith, a senior research analyst at Piper Jaffray in New York City.

Now that the economy is rebounding, consumers with more spending power could move away from dollar stores to other retail options.

For many in rural areas in Idaho, that is unlikely, however, said Will Jenson, a regional economist with the Idaho Department of Labor. Jenson said the lack of competition in rural areas makes the dollar stores there more stable. And it’s hard for local retailers to beat the low prices found at a national chain like Family Dollar.

Schlag said that as long as dollar stores are the first to expand into a more rural setting, they could be set for a long time.

“If you are the first one to open, you basically lock up that market,” he said.

Nationally, consumers don’t appear to be backing off dollar store shopping. Same-store sales growth for the top three dollar stores, all of which are publicly traded, remains between 2.5 percent and 3 percent.

“There are a lot of retailers that would be very satisfied with that same-store sales growth,” Keith said, adding that the rate of growth has been moderated in the last six to nine months. “That is the reason you are hearing this topic of potential saturation coming up more and more.”

Schlag said that in Idaho, dollar stores can expect to see costlier deals when looking for space simply as a reaction to more competition.

As some dollar stores start selling food, as in Family Dollar’s packaged food store sections, they will also be excluded from most developments anchored by a grocery store. Grocery stores usually come with a noncompete agreement for tenants, Schlag said.