Small-Format Value Retailers

Combine discount pricing with groceries and convenience and you have a formula for flourishing in a recession. Nielsen has figures to back that up, showing that dollar stores have enjoyed more sales growth than any other retail segment — growth that is being driven by consumers of all income levels, but is highest among shoppers with family income in excess of $100,000 annually. In the last six months of 2008, those high-income households spent 18 percent more at dollar stores than they had during the same period the year before.

Family Dollar is the star of this group, finishing 2008 with the best-performing stock in the S&P 500 index (the value of Family Dollar’s common stock increased 33 percent last year). Approximately 60 percent of Family Dollar’s sales are generated by food and other consumables, a far cry from the company’s origins as a peddler of closeout garments produced by the factories near its North Carolina home office.

Food’s growing importance as part of the merchandise mix coincided with Family Dollar’s push away from the small-town South and into urban markets in the Northeast and Midwest. For the past three years, the company has been upgrading its merchandise management technology, an effort scheduled to be completed by the end of this year.

Though not a dollar store, Big Lots operates in the same niche with its closeout merchandise. The company has turned around under chairman/president/CEO Steve Fishman and will open more new stores in 2009 than it did over the last three years combined, including a new hometown flagship in Columbus, Ohio.