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January 22, 2018
Focus: Commercial development

Dollar stores are expanding their footprint in Maine

Photo / Fred Field
Photo / Fred Field
Brien Walton, assistant professor of entrepreneurship at Husson University, says dollar stores appeal to customers from a range of incomes. He's pictured outside a Dollar Tree store in Bangor.

Dollar Tree Inc.

NASDAQ: DTLR

Headquarters: Charlotte, N.C.

Founded: 1986, acquired Family Dollar in July 2015

Sales (fiscal 2016): $20.7 billion

Employees: 175,000-plus

Stores: 14,744 Dollar Tree, Family Dollar and Dollar Tree Canada stores (as of Oct. 28, 2017)

7,000 SKUs per store

Stores are typically 8,000 to 10,000 square feet of selling space

24 distribution centers

In Maine: 100 stores (38 Dollar Tree and 62 Family Dollar), typically 10–15 employees per store

Dollar General Corp.

NYSE: DG

Headquarters: Goodlettsville, Tenn.

Founded: 1955

Sales (fiscal year 2016): $22 billion

Employees: 130,000-plus employees

Stores: 14,321 (as of Nov. 3, 2017)

10,000 to 12,000 stock-keeping units (SKUs) per store

7,300-square foot stores

15 distribution centers

In Maine: 43 stores, about 300 employees

Husson University's Brien Walton likes visiting dollar stores for research purposes.

"I find them fascinating," says Walton, an assistant professor of entrepreneurship. "Being a student of retail trends and pricing and merchandising and sourcing, sometimes I'll go into stores and see where they're getting their products from, which countries are stocking these stores, and looking at trends in product quality."

His conclusion? "Just because it's cheap doesn't mean it is cheaply made, and sometimes they're able to get an overstocked item and sell it at a discount," he says. "That's why some people go there, not just people with low incomes but a lot of people as well from the middle and upper middle classes."

That's one explanation for the mass appeal of dollar stores, the generic term for hard-discount chains led by Dollar General Corp. (NYSE: DG), Dollar Tree Inc. (NASDAQ: DLTR) and Family Dollar, acquired by Dollar Tree in 2015.

Dollar Tree, founded in 1986, still prices all of its products at a buck or below, while Dollar General, which started with a single Kentucky store in 1955, now sells just a quarter of its merchandise at that amount. Both are hugely successful and are expanding their footprint in Maine, where a Dollar General opened on Damariscotta's Main Street shortly before Christmas, a Family Dollar opened on Caribou's Skyway Drive last June, and a Dollar Tree opened on High Street in Ellsworth last March.

As more established retailers hurt by Amazon retrench or retreat, cinder-block dollar stores are sprouting up in suburbs, cities and rural areas from coast to coast faster than you can say retail revolution.

"The growth of this industry reflects another significant change in retail spending," says David Findlay, an economics professor at Colby College.

Photo / Jim Neuger
Photo / Jim Neuger
A shopper outside a Dollar General store in South Portland

The numbers bear that out: Dollar General and Dollar Tree (with Family Dollar and Dollar Tree Canada) have a combined 29,065 stores in North America. By comparison, Wal-Mart Stores Inc. (NYSE: WMT) has more than 4,600 outlets nationwide it says are within 10 miles of 90% of the U.S. population.

Filling a niche

Photo / Fred Field
Photo / Fred Field
The Family Dollar store in Pittsfield, Maine.

But what about folks that aren't close to a Walmart or Hannaford or just need a few cheap sundries on the quick, whether they're struggling to pay the bills or just shopping in between regular stock-ups?

That's the niche that dollar stores are going for, with one-story, no-frills outlets peddling toiletries, house wares, stationery, socks, packaged foods and more in what amounts to a crammed pantry of stuff, or a "warehouse with aisles," as Husson's Walton puts it.

Dollar Tree prefers to lease existing buildings while Dollar General says it looks for opportunities that can best meet its customers' needs. Both own and operate stores rather than franchising and staff the stores with local hires. New constructs are quick and easy to build, for a fraction of the cost of a hulking Walmart.

"They're a pretty basic concept as far as the building goes, and the business model is fairly simple," says Peter Harrington of Portland's Malone Commercial Brokers. He also notes that they don't have a problem finding land.

"Driving out in the middle of Maine, all of a sudden you'll see a dollar store," he says. "They're eating into Walmart's and Hannaford's business."

Wade McDevitt, whose Philadelphia-based real estate firm McDevitt Co. brought retailers Anthropologie, Urban Outfitters and Carhartt to Portland, has a similar observation, saying, "They're trying to provide a commodity product." Much as fast-fashion is influencing clothing retail, dollar stores are disrupting food and cosmetics retail and says that their proximity to customers is key to their success. "It's about a convenience factor," he says.

In some cases, competing stores are in close proximity to one other, some even within walking distance.

Maine spending spree

In Maine, Dollar General operates 43 stores that collectively employ about 300 people. The Goodlettsville, Tenn.-based firm owns more than 14,000 stores and reported $22 billion in fiscal 2016 sales. It's been in Maine — and Rhode Island — since 2015.

Dollar General aims to make shopping a "truly hassle-free experience" with the most popular brands of "simple necessities" like laundry detergent, toilet paper, socks and underwear, and says its average customer shops in under 10 minutes. By February 2019, it plans to open about 900 stores, remodel 1,000 and relocate 100 others, it announced in December with third-quarter results that beat market expectations.

While Dollar General spokeswoman Crystal Ghassemi didn't indicate plans for Maine, she said via email that it chooses store locations based on customers' needs and convenience, since it generally serves those living within a three- to five-mile radius, or a 10-minute drive.

"We also take demographic trends, competitive factors, traffic patterns and community concerns into consideration," she adds.

Dollar Tree, which is headquartered in Charlotte, N.C., has 100 stores in Maine, of which 38 are Dollar Tree and 62 are Family Dollar, out of 14,744 total across North America. There are typically 10 to 15 employees per store, with the full- and part-time mix varying by location. Dollar Tree stores are mainly in suburbs and serve a broad range of income levels, while Family Dollar focuses on major urban and rural areas targeting a below-average household-income consumer.

Randy Guiler, Dollar Tree's vice president for investor relations, said in an emailed response to questions that "we are pleased with the performance of our stores in the Northeast and will continue to open stores in the region over time."

Husson's Walton questions whether the growth momentum can go on for much longer, saying, "It's not going to be a long-term sustainable model unless they're able to diversify. One way they might do that is by acquisition."

Mixed reviews

As with all new developments in Maine, the response to new dollar stores has been mixed but not enough to stop the expansion drive like in Damariscotta, where the Maine Street Dollar General opened its doors less than two months after voters narrowly rejected a moratorium on new development.

In South Portland, home to Maine's biggest mall, a property on Main Street, also U.S. Route 1, was redeveloped as a multi-unit commercial building with Dollar General occupying the biggest space. "The redeveloped property looks great," enthuses assistant city manager and economic development director Joshua Reny. "Anytime the city sees more inventory come on the market it is welcome, and it is sorely needed with vacancy rates as low as they have been."

Reviews from the small business community on dollar stores is mixed.

"In general, having more chain stores in the state of Maine is not only detrimental to Maine's small businesses for all the reasons that people expect, but one that is often overlooked as well," says Will Ikard, director of the Maine Small Business Coalition. "It makes it harder for small business owners to do the right thing by their employees in terms of wages."

Surprisingly, two independent retailers contacted by Mainebiz don't feel threatened by the dollar-store phenomenon.

"I think it' great," said Robert Gardiner II, owner of Damariscotta Hardware on the same street as the new Dollar General. "It brings more people into town."

And in Bangor, Rebecca's of Maine co-owner Rick Vigue says that dollar stores "have almost absolutely nothing that we would carry," which includes upscale gifts made in Maine. "If one opened across the street I wouldn't think twice about it."

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