Friday, February 27, 2009

Dollar Stores have the Blueprint for Profits in Current Economy

Source Article: Discounter Dollar General lifted by downturn in US | www.retail-week.com (view article)

Ramifications:

1) Value oriented retailers like dollar stores will experience growth vs Competitors

2) "Cash is King" for the Middle and Lower Middle Income Households

3) "Value" pricing and Large Store Count Means convenience for consumers

4) Other sectors should benefit from downturn, Auto Parts, Rent-to-Own among big potential winners.

Analysis:

The news that Dollar General's results are good is a direct reflection of the prevailing retail climate in the US. "Value" is winning the battle for the hearts and minds of consumers as economic uncertainty continues to be the headline.

The "Dollar Store" category is interesting in that it offers a bare bones consumer experience, private label and lesser known CPG brands, and no frills for the consumer. Exactly what families worried about current finances and future job security and shaky signals from business and the government want.

The shampoo still gets your hair clean, the kids still drink the carbonated soft drinks you can buy in 2 Liter bottles "2 for a buck".

It will be interesting to see Pepsi and Coca-Cola's volume figures, as they have tried to make a price increase stick in the face of the economic downturn. Coke went with a straight price hike, Pepsi went from 12 paks to 8 paks for 12 OZ cans. The dollar stores can give a good alternative to that.

Dollar General is a retailer that fills an urgent need right now, and the news of continued store count growth makes sense. The ubiquity of well-known Dollar Brands in suburban and working-class communities has eliminated any stigma consumers may have felt about patronizing the stores. They are convenient and provide value. Big Lots is a good bet to prosper, too.

That should lead to thinking about other retailers who may benefit from consumer sentiment and the economic climate right now. Auto Parts retailers come to mind. Cars aren't being purchased, new OR used, but people are still driving. Somethings gotta give, and I think Autozone and Advanced Auto parts could be beneficiaries of this trend; Pep Boys and other repair service chains should benefit, too.

Rent-to-own retailers Rent-a-Center and Aaron's Rents should benefit as consumer credit stays tight and consumer confidence remains low.

Retail this coming year will have some bright spots, but they will be in value-oriented main brands (Wal-Mart, McDonald's), and retailers like Dollar General and Rent-A-Center, whose offerings appeal to families who are struggling to maintain their lifestyle, when it's becoming very tough to do that.

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