My first dollar-store experience happened when I was in college. Back in the late '80s, there weren't too many places for us students to shop in what was then a sleepy, rural college town. However, there was a dollar store -- I believe it was called "Just a Dollar." We thought it was pretty darn cool to pick up a bunch of cheap stuff without breaking our (extremely small) banks.
It's no surprise that I was first exposed to a dollar store in such a remote location. That's a popular spot for the format. Many of them focus on underserved urban and rural communities, where there might not be a Wal-Mart (NYSE:WMT) or a Target (NYSE:TGT). And even if there are, dollar stores give those discounters a run for their money.
It's possible that dollar stores are becoming increasingly trend-forward. Just consider my own anecdote from my college days. College students, after all, grow into adults who know about dollar stores' cheap fun. Data show that while such stores have a core base of low-income customers, there's also an increase in more affluent households turning to dollar stores for bargains -- or sometimes just for the eclectic, changing selection of items, sometimes quite kitschy or offbeat. One such publicly traded company, Dollar Tree (NASDAQ:DLTR), describes its shopping experience as "The Thrill of the Hunt." No wonder stores like this are appealing to more than one kind of shopper.
A hundred pennies for your thoughts
A buck doesn't buy what it used to, and that probably helps boost the powerful psychological appeal of the dollar store. Depending on whom you talk to, the high price of gas and the steadily increasing cost of living might either be a boon or bane to such stores. Some observers argue that lower-income customers will feel the pinch and pare down the dollars they're willing to spend. On the other hand, more and more middle- and upper-income folks are looking for bargain-basement treasure as well, if recent research is any indication.
According to a study from market researcher Retail Forward last August, a surprising 75% of Americans said they had gone to a dollar store, or a similar "small-format value retailer," within the past six months -- more than had visited a supercenter such as those Wal-Mart is famous for. Retail Forward also said that one-third of all dollar-store shoppers actually bring home more than $50,000 a year.
Speaking of Wal-Mart, it's worth noting that the dollar-store concept predates the big discounters. A Wikipedia entry reminded me that the dollar store is really a new example of a very old idea -- think back to the old "five and dime" stores. My grandmother always called the local pharmacy the "five and ten," although by my time, it certainly didn't offer anything for a nickel or a dime.
The dollar-store segment has grown in recent years, with several publicly traded entities making up the majority of such stores. There's Dollar Tree, as we mentioned, and there's also Dollar General (NYSE:DG), Family Dollar (NYSE:FDO), and 99 Cents Only (NYSE:NDN). Be careful, though -- if you're looking to shop for a buck a pop, some stores don't quite adhere to that standard. Some items do cost a bit more. For example, only 30% of Dollar General's merchandise costs a dollar or less, according to its website. And, of course, adding sales tax takes the cost up a notch, too.
How do dollar stores sell on the cheap? They tend to offer items in smaller quantities than other stores do, or they offer generic products lacking brand cachet. They also buy overstock merchandise or seasonal merchandise that is, in effect, out of season. So, if you don't mind shopping for Easter trinkets in May, you might be able to pick up some holiday-related bric-a-brac for the following year at rock-bottom prices.
The power of the segment is evident, now that some other retailers have taken to offering dollar sections for scavenger hunters. My research on the Web revealed that Target, Albertson's (NYSE:ABS), and Michael's, among others, have experimented with dollar sections where customers can dig for goodies. Everybody, it seems, loves a cheap trinket or a great deal.
Digging dollars
I decided to take a look at a nearby dollar store and even got a recommendation from my roommate as to which one was the best -- Dollar Tree, she said. She's a teacher, and she often pops in there to find cheap odds, ends, and supplies that can assist her with classes -- which I didn't actually realize until I mentioned I was working on this story.
I was surprised by what I found at Dollar Tree. Although most items were definitely generics or "almost" brands (similarly packaged to name-brand equivalents but with different names) -- I did see some name brands in the store, like Colgate toothpaste, Soft Soap (also owned by Colgate), Procter & Gamble's Joy, and Cadbury's Trident. I was also surprised to run across a two-pack of Revlon nail enamel, again, for just a buck. Beyond the essentials (cleaning supplies, kitchen utensils, health and beauty products, and office goods), things like candles, party supplies, wrapping paper, and cheap toys all reinforced the idea of a bazaar of cheap thrills.
I picked up a variety of items that seemed as though they might be a steal at a dollar -- bearing in mind, of course, that the psychologically tantalizing price point of "just a buck" doesn't necessarily mean you won't find a better deal elsewhere. For example, I bought a pair of scissors, and then I conducted a Web search of Office Depot, which yielded the cheapest comparable pair at $1.59. A vinyl shower curtain liner with magnets compared to a $6.99 price tag at Target.com. The pack of 80 cotton rounds I picked up at Dollar Tree compared with a pack for $2.39 (marked down by 15%!) at CVS's website cvs.com.
That's by no means scientific data, since I'm sure that a more thorough price search might yield better deals on some of those items. However, it hammers home the idea that dollar-store shopping can save shoppers of all budgets a couple of bucks. The items I listed above are the types of things many of us often pick up on impulse, giving hardly a thought to the idea that we might find them cheaper elsewhere. And of course, the ever-changing face of dollar-store selection gives reason to stop in often. Even more interesting, ACNielsen predicts that this year, dollar stores will even increase their parallels to the dime stores of yore, by expanding their wares to include fresh- and frozen-food sections at value prices.
Long ago, Ben Franklin came up with some highly quotable words of wisdom that stood the test of time: "A penny saved is a penny earned." OK, so most of us don't think in terms of pennies anymore, but most of us agree with a modernized version of that old saying: A dollar saved is a dollar earned. That idea lends dollar stores a lot of clout when it comes to saving here and there -- not to mention the "thrill of the hunt."
Dollar Tree and Colgate are Motley Fool Inside Value recommendations. If you like digging through the stock market's bargain bins, you'll love Inside Value. But Philip Durell's service offers you more than just trinkets -- he helps you unearth the market's best undervalued stocks. Try it out free for 30 days.
Family Dollar is a Motley Fool Stock Advisor selection.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.
