October 1, 2008 in Business

Stores buck the trend

Dollar retailers gaining popularity as shoppers stretch budgets
By Sarah Skidmore Associated Press
 
Nick Ut photo

Jacques Elsair shops at a 99 Cents Only Store in Los Angeles in early September.
(Full-size photo)(All photos)

PORTLAND – A buck will still buy you a bottle of shampoo, two rolls of paper towels or four containers of generic breath mints at some dollar stores. It even buys a bit of excitement in the hunt for a deal.

But it won’t buy motor oil. Or a multipack of Tic Tacs. Or many other items that were once a steal for a single dollar.

Tough economic times have meant a boom in business for many dollar retailers as shoppers hunt for bargains. Most have seen their traffic and sales grow. But the rising cost of goods has some companies examining their offerings more closely.

When oil prices began to tick up a few years ago, several dollar store chains phased motor oil out of their mix. When the cost of Tic Tacs went up last year, Dollar Tree switched to a generic brand so it could continue its four-pack deal. And in September, 99 Cents Only Stores said commodity and fuel prices were forcing it to raise its price for the first time in 26 years, to 99.99 cents – which rounds up to $1 at the register.

Analysts say the dollar represents an accessible, and sometimes disposable, price for shoppers.

“The dollar today is what the penny was to the grandparent’s generation,” said Marshal Cohen, an analyst for the research firm NPD Group. “When you can get something for a dollar and it works, people get excited.”

A bevy of stores are trying to cash in on that, even though many “dollar” stores sell items for a few bucks as well. Family Dollar Stores, for example, says just about 31 percent of the thousands of items in its stores these days are priced at a dollar or less.

McDonald’s has a dollar menu that figures heavily in its advertising. Target had a “one spot” fixture for several years, where items sold for a dollar or less, before it was expanded in 2006 to include a larger array of items and pricing.

“It’s a treasure hunt,” said Target spokesman Josh Thomas.

And in some cases, it’s necessity.

Dollar stores say they’ve seen sales of items such as food and grooming products grow the fastest as consumers try to limit spending to just the necessities.

“We feel right for the times; we are relevant,” said Chelle Davis, spokeswoman for Dollar Tree Inc. “Who doesn’t want to save money?”

Stores say they are working aggressively to find the best deals. They are able to get the less expensive goods by working closely with vendors, limiting packaging, selling overstock items and maintaining flexible layouts to switch out products quickly.

In the case of 99 Cents Only Stores, the product lineup remains largely the same. But company leaders say the fraction of a penny change will help it balance out some of the losses from rising costs. Dollar discounters say they expect their popularity to continue as consumers watch their spending and media continues to focus on how consumers can stretch a buck. Cohen said the stores allow consumers to shop guilt free, with some adventure, and he doesn’t expect people’s desires for that to change soon.

“A dollar of detergent is smaller than what I’m going to get at the grocery store,” Cohen said. “But when I’m hard-pressed for money and every dollar needs to go as far as it can, I’m happy to get what I can. … That’s how the majority of consumers shop.”

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