Shoppers to Find More Cents Here, Dollars There

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Dollar stores have been a choice destination for many cash-strapped shoppers during the recession. And now the deep-discount retailers are in expansion mode.

Early this month, 99 Cents Only Stores Inc. announced that it will open 12 stores in the coming months. Most of them will be in California, with two slotted for Los Angeles County.

But the discount chain is making its expansion as competition increases. In mid-November, Family Dollar Stores Inc. in Mathews, N.C., opened its first four stores in California with plans for up to 46 more by this time next year. The first stores opened earlier this month in Fontana, Riverside, Ontario and Rialto.

Eric Schiffer, 99 Cents Only chief executive, said he isn’t concerned. Each 99 Cents store has average revenue of about $5 million a year, while Family Dollar stores have $1 million.

“There’s a reason for that,” Schiffer said. “It speaks to the great value we have. I think our format is pretty unique and we have a very compelling retail format.”

The City of Commerce company, which has 290 stores in California, Arizona, Nevada, and Texas, said it plans to grow that number over the next year by 10 percent, meaning about 30 more. Most of those stores are expected to be in California. The company now has 214 in the state, including 85 in the county.

Nick Mitchell, an analyst at North Coast Research in Cleveland, said the chain’s planned expansion reflects both consumer demand in a harsh economy and 99 Cents Only’s improvements in operations.

“The consumer is still fragile,” Mitchell said. “But it’s also a reflection of the strong improvements that they’ve made within the organization in terms of improving the merchandise that they offer to consumers, improving their cost structure, improving their real estate site selection and just improving the overall profitability of the company.”

The 99 Cents Only chain has opened two stores this quarter – one near Houston and another near Sacramento – with a third to open in early December in Lake Havasu, Ariz. Plans for Los Angeles County store openings include Duarte in January and Covina in February.

The average 99 Cents Only store takes about 18,000 square feet, more than twice that of the average Family Dollar store’s 8,000 square feet.

“We also have a very strong offering of perishable foods, including fresh produce,” Schiffer said. Grocery and perishable items take up about 55 percent of shelf space at 99 Cents Only stores.

Family Dollar has about 7,000 stores across the country. The chain specializes in canned food, clothing and home decorating, but does not offer groceries or perishables.

“California represents a great opportunity for Family Dollar,” spokesman Josh Braverman said. “There are a lot of people who live in California, and a lot of people who could benefit from what we provide.”

Braverman, who said the company’s move into the state represents just 10 percent of total planned growth for the year, said Family Dollar doesn’t see competition from 99 Cents Only as a challenge.

Another rival discount store, Dollar General Corp. in Goodlettsville, Tenn., has said it plans to open its first stores in California, too. The company didn’t elaborate, and a company representative didn’t return a phone inquiry.

In its second quarter earnings, released early this month, 99 Cents Only reported net income of $15.1 million, 17 percent higher than the previous year.

The local retailer announced in October that it had agreed to go private in an acquisition by investors offering $1.6 billion for the company.

Dollar stores – and especially 99 Cents Only – may also have an appeal that stretches beyond the lower-income demographic.

“Everyone’s under pressure, everyone wants value and everyone wants a bargain, especially in a recession,” said Joan Storms, an analyst at Wedbush Securities in Los Angeles. “I go to 99 Cents Only Stores and I get all my produce there before I go to the grocery store. Dollar stores have turned out to be – and not just because of the recession – a great place to shop.”

What happens when a full economic recovery arrives? Will dollar stores still thrive? Mitchell at North Coast says yes.

“I think this most recent recession was so severe that it really changed the consumption behavior of consumers,” he said. “And I think consumers over the next five years are going to remain frugal, so that will allow the dollar store channel to retain the majority of that market share that they captured over the last three to four years.”