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Updated: 1:28 p.m. Sunday, May 27, 2012 | Posted: 1:27 p.m. Sunday, May 27, 2012

Dollar stores’ growth hurting independents

A local retailer moves from Bechtle Avenue to downtown.

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Dollar stores’ growth hurting independents photo
Jim Lagos, owner of the Bushnell Building (left) and Maureen Fagans, executive director of the Center City Association, talk with Scott Wiseman, owner of Dollar Days General Store, in the lobby of the Bushnell Building.

By Mark Fisher and  Everdeen Mason

Staff Writers

The nation’s three largest dollar-store chains are expanding rapidly in the area, attracting throngs of recession-ravaged consumers at the expense of locally owned discount stores.

And these deep-discount retailers are seeking new ways to shed the stigma against them and to retain their newfound customers even after the economy improves, industry analysts and company officials say.

Dollar stores already were a strong presence in the retail marketplace even before the recession, but they have transformed into a powerhouse by stocking their shelves with national-brand merchandise that appeals to both low-income households and higher-income shoppers forced to become more thrifty during the recession.

Scott Wiseman, who owns Dollar Days, originally opened his store on Bechtle Avenue with the hopes of capitalizing on the dollar store industry.

But “if you’re not Walmart or Dollar Tree, you’re not going to make it, not as an independent because that’s where everybody goes,” Wiseman said. “Plus the shopping center didn’t stay full, there were always seven to eight empty stores and I couldn’t get traffic I needed.”

Justin Waterman — analyst for Los Angeles-based IBISWorld, an independent industry research firm, and author of the firm’s “Dollar & Variety Stores in the U.S.: Market Research Report” that was released in April — said the largest dollar-store chains such as Dollar General and Family Dollar are taking market share from several retailers, but are hurting small independent dollar stores such as Dollar Days the most.

“The mom-and-pop 99-cent stores can’t leverage big purchases or bargain with the big suppliers,” Waterman said. “The mom-and-pop stores can’t buy their merchandise as cheaply, so their margins shrink lower and lower, and many are forced out of business.”

Wiseman was able to avoid going out of business by moving to downtown Springfield in the Bushnell Building on Fountain Avenue last year. He also said he had help from a Nevada-based dollar store service that helped connected him with suppliers who could sell him items cheaply enough to stay competitive.

“Each day gets better,” Wiseman said. Dollar Days is the only convenience store within walking distance of many of downtown’s office buildings. “Plus I’m far enough away from other dollar stores so they don’t hurt as much.”

But throughout the rest of Springfield and the Miami Valley, the dollar store industry is dominated by three major players:

• Dollar General, the industry leader, which two months ago opened its 10,000th store in the U.S. The company sells its own private label products but also stocks brand-name merchandise. The company has about 50 stores in the Miami Valley, from Eaton to Springfield and from West Milton to Lebanon. Total 2011 net sales jumped 13.6 percent to $14.8 billion, and same-store sales increased 6 percent, thanks to increased customer traffic and higher average transaction amounts, company officials said.

• Family Dollar, which operates 42 stores in the area from Lebanon to Tipp City and from Eaton to Springfield. The chain is spending $1 million to build a new store expected to open in August at 809 Selma Road. It is the 10th Family Dollar location in the Clark and Champaign region. The company reported total net sales for the second quarter of its 2012 fiscal year rose 8.6 percent to $2.5 billion, while same-store sales rose 4.5 percent from increased customer traffic and higher average sales transactions.

• Dollar Tree, which operates about 15 stores in the Dayton area, including stores in Lebanon, Springfield and Piqua. Earlier this month, the company reported first-quarter sales reached $1.72 billion, up 11.5 percent from 2011, while same-store sales rose 5.6 percent. Dollar Tree officials said the company has reported double-digit year-over-year percentage revenue growth for the past five quarters. The company opened a Piqua store in 2009.

Analyst Justin Waterman said the Big Three dollar stores are not necessarily looking to locate their stores in close proximity to each other, “but they do want to be close to the demographic they’re serving,” and end up clustering together inadvertently.

That target demographic is changing, however — shifting from a market that was skewed almost exclusively toward low-income residents in densely populated areas to a more diverse target market that includes more middle-income suburban residents, Waterman said. The large chain dollar stores have expanded the size of their stores, improved the displays and added national brand names, among other strategies to appear to a broader target market, he said.

Those moves coincided with an improvement in suburban consumers’ perception of dollar stores, Waterman said. As more suburban shoppers turned to dollar stores during the recession, suburban residents started hearing about and noticing the bargains their neighbors were getting at the dollar stores, and started checking out the stores for themselves.

“The stigma surrounding dollar stores has kind of gone away” in recent years, Waterman said.

The analyst’s dollar-store industry report calculated that the industry’s revenues grew by an average of 4.3 percent per year over the past five years, and projected will continue — although at a slower pace of 2.6 percent a year — for the next five years.

Serdar Durmusoglu, assistant professor of marketing at the University of Dayton, said dollar-store chains “need to expand their target market” after taking advantage of the lengthy recession and competing, often successfully, against discount stores such as Wal-Mart, drug stores such as CVS and Walgreen’s, and grocery stores.

And the dollar-store chains are doing exactly that: A subsidiary of Dollar Tree — Deals dollar store — has opened a pharmacy in one of its stores in West Park, Fla., and the chain’s top officials have hinted that more pharmacies may be coming to other stores. In addition, Dollar General has been adding groceries to an increasing number of stores nationwide, and Waterman said that trend is catching on with other dollar store chains.

Dollar Days is also making changes. The store will take customer requests on what they should stock. The owner, Scott Wiseman, said greeting cards, party supplies and grocery items are the most popular products they sell.

Wiseman emphasized that they want to shape their store around community needs to attract more people.

“We’re just trying to get people to come back downtown,” Wiseman said. “Shop local because the big chains, they can make it. It’s the little people who are struggling.”

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