Giant discount stores eye success of booming dollar store franchises

Imitation is said to be the sincerest form of flattery. If that's true, discount giants Wal-Mart and Target have paid a glowing compliment to small but booming dollar stores, including franchises such as My Dollar Store, Dollar Castle, Just-A-Buck and Dollar Discount. Wal-Mart is testing "Pennies-n-Cents" sections in 20 of their Supercenters, and Target has launched The I Spot in the front of about 125 of its stores.

When you're hot, you're hot. Harvard University Professor John R. Stilgoe, who has studied Wal-Mart's and the dollar stores' growth, predicts that dollar stores are such a major threat that major discounters will eventually have to buy one of these chains or start one.

Franchise dollar store CEOs say their stores are succeeding for some of the same reasons they have since the late 1980s: convenient neighborhood locations (complete with parking), consistently low prices, rapidly changing merchandise, and low overhead.

Eddie Denha, president and CEO of Michigan-based Dollar Castle, says he believes dollar store franchising is still hot because franchisees are able to tap into the experience, name recognition, and buying power of the franchisor.

But what's new, experts say, is that dollar stores are appealing to consumers of all income levels. (Both heiress Paris Hilton and pop diva Jessica Simpson have cited shopping in dollar stores as a favorite pastime.)

Rex Mehta, founder and president of California-based My Dollar Store, says people no longer associate dollar stores with cheap merchandise and messy stores. Now they expect to find inexpensive but quality merchandise with brand name items as well as imported products in a clean, attractive setting.

Findings from a 2004 A.C. Nielsen study back him up; 66 percent of all U.S. households now shop at dollar stores, with the fastest-growing group of dollar store shoppers in the $70,000-plus-income group.

As well as acquiring some major name brands, such as Tide and Crest, dollar stores are focusing on consumables, such as food, cleaning products, pet products, and beauty and hygiene products.

Denha says the next new thing coming up in dollar stores is scrapbooking. "It's the hottest thing I've seen in dollar stores in years," he says.

Dollar stores are also finding books a decent category. Dollar Castle carries new coloring and activity books from Paradise Press and Kappa Books year-round, supplementing that with new and closeout storybooks, especially during the school year. It also has a selection of adult titles, mainly closeouts, receiving a shipment of about 1,000 books every month.

Due to gas prices and other economic indicators, the handwriting is probably on the wall regarding dollar store prices, according to Denha. Your friendly neighborhood dollar store may soon be your friendly neighborhood $2 or $4 store. "Dollar stores are going higher than a dollar. We're holding at $1 because we feel there's still more room there, but going higher is inevitable," he says.