Dollar Chains Ahead in Race for Market Dominance

In spite of putting forth their best efforts, drugstores trail dollar stores in the war for U.S. consumers. A report published earlier this week by brokerage firm Colliers International looks in-depth at dollar stores' rapid expansion over the past few years and finds that they've been opening new stores at a faster pace than most of their competitors.

According to a post on Merchandising Services Blog, today there are approximately 21,500 dollar stores operating around the country, while national drugstores number 19,700 locations. Family Dollar, with 6,800 stores, and 99c Only Stores, with 285 units, would seem to pose the biggest threat to the drugstores as they generally take locations in urban environments, the drugstores' most established turf.

Dollar General, on the other hand, prefers rural communities with fewer than 20,000 residents. The strategy often allows the chain to be the only necessity retailer in the area, eliminating the need to nab the best piece of real estate and pay top dollar to open new stores.

The last of the four major national chains, Dollar Tree, focuses on the suburbs.

Regardless of where the dollar stores are based, landlords love them. In addition to bringing in steady foot traffic, they willingly go into second, third and fourth generation spaces and have limited need for tenant allowances because of their modest buildouts. The Colliers report notes that the dollar stores have been able to close very aggressive deals, commanding some of the lowest retail rents around:

This is occuring even in markets where landlords, especially those with better-performing centers, are beginning to see some pricing power return to them. Depending on the chain, base rents can run as low as the high single digits for a 10-year term. Rent step-ups are rare during the first five years; tenants will consider a 10% bump (2% per year), beginning in year six, for the balance of the term.
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