Word: dollarization
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...Dollar Tree moving too fast? If there's one lesson from the great retail shakeout of the past year, it's that America has too many stores. Yet Dollar Tree plans to open about 80 more stores by end of year, and foresees growing to between 5,000 and 7,000 stores down the road. But will an extreme discounter like Dollar Tree suffer when the economic winds move against you? "I do think Dollar Tree is a beneficiary of people trading down," says Laura Champine, an analyst at Cowen & Co. "When the economy recovers, I believe its growth will...
Despite the risks, many analysts still like Dollar Tree's plan. Though the worst of the downturn may be over, the recovery promises to be slow. "Extreme value is going to be the gold standard as far as the eye can see," says Howard Davidowitz, chairman of Davidowitz & Associates, a retail-consulting and investment-banking firm. In addition, Dollar Tree is well positioned to take advantage of low real estate prices. "Landlords are looking for growing retailers to fill vacant boxes," says Champine. "Dollar Tree fits." (Read "Inspired by McDonald's, Walmart Creates Its Own Dollar Menu...
...Dollar Tree tends to look for locations in suburban shopping areas, near a Walmart, Target, Sam's Club or a large grocery chain, in an effort to lure bargain-seeking customers from these stores. "If we are where the shoppers are anyway, it's a win-win for the customer, and for us," says Reid. Boosting the number of stores may help it steal market share from its chief competitors, Dollar General and Family Dollar, which have also done well in the recession and have significantly more stores than Dollar Tree (around 8,500 and 6,500, respectively). Dollar Tree...
...Dollar Tree seems to have a knack for good timing. "They saw the recession coming," says Brent Rystrom, analyst at Feltl & Co., "and started selling more non-discretionary consumable products like food and health and beauty items." The store now sells Hormel sausages and Green Giant frozen vegetables, and over 1,200 of its stores now have refrigeration units. Now, in anticipation of an economic uptick, Rystrom is seeing Dollar Tree shift back to more discretionary items like decorations and toys, which tend to offer higher margins...
Rystrom also points out that Dollar Tree caters to a slightly more upscale consumer than its competitors do - the company says the average family income for an average Dollar Tree consumer is above $40,000. Nor are these consumers likely to abandon Dollar Tree when times improve - they may simply buy more discretionary items. "Consumers are watching every penny, and this isn't temporary," says Davidowitz, the retail consultant. "Dollar Tree is positioned phenomenally...