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Did Dollar Stores Over-Expand?

For successful retail chains, overexpansion is a forever lurking danger. Once a company finds it core customer and its same-store sales begin to shoot up, it's hard to resist the temptation to open a store on every corner. Before the recession, this was a snare that almost destroyed many discretionary retailers. Through the recession, however, the one sector that was able to expand were dollar stores. And according to a recent story in the Wall Street Journal, they may now be facing the same problem that Starbucks did in 2008.

The WSJ story points out that Dollar General, Family Dollar and Dollar Tree have all been opening hundreds of new stores a year for the past few years, in spite of a changing consumer climate and growing competition from retailers like Wal-Mart. As a result, sales growth at these chains has slowed and profit margins have declined.

"There was enough business for two chains to grow strongly with rising margins, but since Family Dollar started pushing hard, it may be harder to do," said Aram Rubinson, retail analyst at Nomura Securities.
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