Dollar Stores Continue to Endure the Retail Apocalypse, for Now

In a record year for US retail store closures, dollar stores are thriving. Not only are major players opening a significant number of new locations, but more consumers are regularly shopping for groceries at dollar stores than any other time in the past five years. But dollar stores, which have been praised as survivors of the ongoing retail apocalypse, could face new pressure from Amazon come 2020.

The top three US retailers with the most store openings in the first four months of 2019 were all dollar stores, according to Coresight Research. Collectively, Dollar General, Dollar Tree and Family Dollar opened more than 1,500 new locations.

While Dollar Tree Inc.—which owns both Dollar Tree and Family Dollar—did announce closures of several hundred Family Dollar locations set for 2019, the combined opening of more than 500 new locations helped offset the loss. Dollar General Corp., which is Dollar Tree Inc.’s main competitor, has an even more aggressive growth plan, opening close to 1,000 new locations in the first four months of 2019, per Coresight Research.

Dollar stores are by far the most dominant value-store category in the US when it comes to quantity. With well over 30,000 combined locations, the number of Dollar Generals and Dollar Trees dwarfs those of wholesale retailers like Costco, Sam’s Club and BJ’s, according to Coresight Research.

(Dollar stores even outnumber Walmart, which has fewer than 5,000 locations in the US, according to its website.)

Consumer interest in grocery shopping at dollar stores has gained significant traction in the past year. According to a report published in September 2019 by TABS Analytics and Caravan Engine, more than half of US internet users said they grocery shopped regularly at dollar stores, compared with just 33% who said the same in 2018. This is a significant shift in consumer grocery habits. Aside from the increased adoption of online grocery shopping (17% in 2018 and 37% in 2019), dollar store grocery saw the largest year-over-year uptake.

But trouble could be looming for dollar stores, as Amazon expands its discount offerings, both online and at brick-and-mortars.

Earlier this year, The Wall Street Journal reported that the ecommerce giant has plans to open a new chain of grocery stores. Amazon has already entered the grocery space with its acquisition of upscale grocer Whole Foods—and was able to cut prices. Its new venture into even more affordable grocery products could bring greater competition to dollar stores.

Subsequent reporting from The Journal revealed Amazon's plan to open its new grocery stores in suburban areas outside of urban city centers, indicating that it will focus on targeting middle-income consumers.

USA Today cited Amazon’s expansion of one-day shipping for Prime members as another potential threat to dollar stores. Previously, orders of $25 or less were not eligible for the free one-day shipping included in Amazon Prime memberships. However, in recent months, Amazon has been rolling back this policy, and now offers free one-day shipping on select low-price items.

It’s too early to tell whether Amazon’s efforts will be able to disrupt the dollar store industry. But if media speculation is correct about the positioning of Amazon's new grocery stores—and if one-day shipping continues to expand—dollar stores could face new challenges in the coming years.