Dollar Chains Thrive in Weak Economy

While most retailers continue to struggle with sluggish sales growth, dollar stores are flourishing, according to Dollar Days, a December 2011 Colliers International white paper. Dollar General, Dollar Tree, Family Dollar, and 99¢ Only Stores currently operate approximately 21,500 U.S. locations. In fiscal 2011, Dollar General added 625 locations, followed by Family Dollar and Dollar Tree, which opened 300 and 275 new stores respectively.

This aggressive expansion, coupled with strong earnings, has made dollar stores popular among landlords and investors, the paper notes. Many submarkets or sites that would have been off limits a few years ago are looking to dollar stores to fill vacancies. This is reflected in the asking rents, which can run as low as the high single digits for a 10-year term, depending on the chain. Strip centers that contained a Dollar General commanded asking rents from $8.32 per square foot to $8.60 psf in 3Q11, and Family Dollar centers saw asking rents from $9.29 psf to $9.43 psf during this period. Dollar Tree favors better quality suburban centers with higher rents.

For landlords considering dollar stores as potential tenants, “Sacrificing a couple of dollars in rent is well worth the uptick in occupancy, especially in centers below 100,000 sf, as the landlord’s upside comes from the resulting lower valuation multiple,” according to the paper.