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More Bargaining Power to Discount Stores, Retail Frontier Shifts

As the global economy staggers and consumers remain austerity-oriented, dollar stores or discount stores are presenting a more viable model.

So much so that big names such as Walmart are deciding to adopt the “bargain” strategy by opening smaller stores.

Shopping centres in North America are witnessing an influx of bargain store chains, prompting a fall in vacancy rates at these shopping complexes to 8.6% in 60 major US markets last year.

The figures came from Cassidy Turley research, who also noted a “seismic shift in retail shopping centers.” Over the past three years, bargain retail brands such as Dollar General, Dollar Tree, and Family Dollar have opened an average 2,000 new stores each.

Meanwhile, big names in US retail such as J.C. Penney, Sears, Staples and RadioShack are in a precarious situation where they draw traffic to smaller stores nearby. The two latter companies even announced earlier in March their plans to close a combined 1,325 stores.

"The challenges of the weak economy are being replaced by the challenges of e-commerce," said Garrick Brown, director of research at real estate firm Cassidy Turley. "Dollar stores have just had insane, insane levels of new growth."

“Online retail undoubtedly has snatched some sales away from brick-and-mortar stores but the heat seems to be at the discount store sector.

However, bargain stores have an opportunistic supply chain with an unstable stocking model. With little supply chain planning and low margins, can they sustain their growth over the giants once the latter figure out how to catch up, or expand?”

Already, Walmart has started to tackle small discount stores by planning to open 300 new Walmart Express and Walmart Neighborhood Market stores by the end of this year.

This came after the US giant posted lacklustre results in the last fiscal year, with a 3% drop in consolidated operating income, a 0.4% drop in sales during holiday shopping months and a 1.7% fall in foot traffic during the period.

It is even more challenging for Walmart as the American Customer Satisfaction Index (ACSI) indicated the lowest score for the giant as both department and discount retailer in 2013. Meanwhile, dollar stores scored very high in the ACSI survey.

“There’s room for manoeuvre as Walmart can utilise its vast business network and supply chain power to further segment its customer base and cater to their needs more efficiently.

With the recent opening of hybrid and smaller store format, Walmart may be able to win customers on their fill-in shopping trips; as I signalled in my book “The 5-Star Business Network” retail business model is being revamped right in front of your eyes.