The Supply Side: Dollar, discount stores lead retail store growth for 2021

As Walmart and other retailers focus and spend heavily on omnichannel shopping, other discounters such as Dollar General, Dollar Tree and Ross have announced expansion plans for more stores in 2021.

Coresight Research reports more than 3,199 new store announcements in the first quarter of 2021, compared with 2,548 closures. It is the first time in years the sector showed net growth in stores, according to Deborah Weinswig, CEO of Coresight Research.

Coresight tracked 8,953 closures, along with 3,298 openings in 2020, amid the COVID-19 pandemic. Coresight reported 4,548 store openings announced in 2019. So far, in the first quarter of 2021, Coresight said store openings are on track to outpace prior years.

The discount and off-price segment is poised to keep growing and is carrying the bulk of new store expansion projects. Ike Boruchow, Wells Fargo analyst, said recent surveys by his firm indicate growth in beauty specialty and the off-price discount segment of retail.

Scott Benedict, director of retail studies at Texas A&M University, said off-price discounters and dollar stores are an anomaly as they grow despite having a limited online presence. He said dollar stores are serving many on a limited budget, and during the pandemic, they also became the go-to for fill-in trips when consumers needed cleaning supplies or diapers.

“It’s quite interesting when you think about how dollar stores and discounters are defying the conventional retail trends that have retailers like Walmart doubling down on e-commerce and omnichannel shopping conveniences that also appeal to consumers,” Benedict said. “That just shows what works for one retailer won’t be the answer for others.”

DOLLAR STORES
Dollar General is among the retailers planning the most significant store growth this year, with 2,900 real estate projects in the pipeline. That includes 1,050 new stores, 1,750 store remodels, and 100 store relocations. The Goodlettsville, Tenn.-based company had more than 17,177 stores at the close of 2020. CEO Todd Vasos recently said the company is expanding from a position of strength and plans to make targeted investments to strengthen its competitive position and further differentiate itself from other discount retailers.

The chain expanded pickup options for customers to 17,000 stores last year. Dollar General also continues to experiment with a fresh food format expanded to 9,500 square feet with additional coolers for meat and fresh produce and additional checkout lanes, including self-checkout.

“We believe this even larger format better positions us to meet the growing needs of our customers, particularly in highly underserved markets,” said Jeff Owen, chief operating officer. “We estimate there are now approximately 13,000 additional small box store opportunities in the continental U.S., which are available for a Dollar General store.”

Dollar Tree and Family Dollar also  are expanding store counts this year. Chesapeake, Va.-based Dollar Tree plans to open 600 stores in 2021 and renovate 1,250 Family Dollar locations. The company will open 400 Dollar Tree stores and 200 Family Dollar locations. The company said the new Family Dollar stores would be the new combined format piloted in 2019 as a combination Dollar Tree and Family Dollar under one roof.

The company said the new combination format is ideal for small towns and rural communities with 3,000 to 4,000 people and where Dollar Tree does not usually operate. Michael Witynski, CEO of Family Dollar, has said the formats are delivering higher gross margins with lower store expenses.

“We are extremely pleased with our customers’ response to the new combination store concept,” he said. “We will continue to refine our strategic store formats so that we can better serve customers while improving store productivity, margins and returns. We want formats that leverage the Dollar Tree and Family Dollar brands’ best to serve customers in all types of geographic markets. We believe we can continue to change, evolve and improve.”

At the start of 2021, Dollar Tree operated 15,658 stores in the U.S. and Canada under the Dollar Tree, Family Dollar and Dollar Tree Canada brands.

OFF-PRICE RETAIL
While traditional department mall-based stores like JCPenney and Macy’s continue to announce store closures, off-mall discounters like Ross, Burlington and Five Below are expanding store footprints.

Jan Kniffen, CEO of J. Rogers Kniffen Worldwide, recently told the Northwest Arkansas Business Journal the off-price discounters continue to be popular with cost-conscious consumers and those who love to treasure hunt. He said the stores don’t have an online business but have defied the odds because they offer brands at a discount.

Ross Stores plans to open 40 Ross Dress for Less and 20 dd’s Discounts locations during fiscal 2021. Long-term, the retailer said it is confident Ross will have 2,400 stores — up from 1,866 locations — and dd’s Discounts will have 600 stores.

Discount competitor Burlington canned its online business in 2019 and has not looked back. The discounter plans to open 100 new stores this year and reach 2,000 stores in the future. Burlington operated 750 stores to start this year.

Burlington CEO Michael O’Sullivan recently said he expects more consolidation and closures of full-price retail brick-and-mortar stores, which should work in Burlington’s favor. As stores close, “many shoppers, especially more affluent, time-starved shoppers, will migrate more of their spending online,” O’Sullivan predicted. “But we anticipate that other shoppers, more value-oriented shoppers, will find their way to off-price.”

Burlington also said it would open smaller stores that carry less merchandise and have lower operating costs than traditional stores. The smaller stores will be about 25,000 square feet versus the 50,000- to 80,000-square-foot locations the company typically builds.

Benedict said the smaller formats make sense for Burlington and deep discounters as their model involved turning merchandise quickly. He said consumers visit the stores because they expect to see something different from the last time they shopped.

TJX Companies Inc., the parent of TJ Maxx, Marshalls and HomeGoods, plans to open 122 stores this year, giving the discount chain nearly 4,700 locations by year-end. Like many of its peers, the company said it sees an opportunity to land good real estate at a reasonable price, thanks to industry disruption.

“With the increase in store closures by some retailers, we are in an excellent position to open new stores in some of our target markets,” CEO Ernie Herrman told analysts in late February. “We also see additional opportunities to relocate existing stores to more desirable locations and to seek out more favorable terms when leases expire.”

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