Will Dollar Stores Fill The Void At Malls From Department Store Closures?

Department stores like Sears, JCPenney, Lord & Taylor and others have either gone under or closed hundreds of stores, threatening to take down shopping malls where they once served as anchor tenants — but dollar stores are booming. Could rapidly growing Dollar General, Dollar Tree and other discount stores become the new anchor tenants for malls and shopping centers and save the day?

Columbia School of Business professor Mark Cohen — former CEO of Sears Canada, Bradlees and Lazarus department stores — thinks dollar stores will be the “big market-share gainers” from the woes of modest-priced department stores like JCPenney.

“They have tens of thousands of stores and are opening thousands more,” Cohen told PYMNTS recently. 

Dollar Store Chains Are Expanding 

The discount stores saw big sales gains in fiscal 2020 — and opened lots of new sites despite the pandemic.

For example, Dollar General said in releasing its fiscal Q3 earnings last month that it opened 780 new stores, remodeled 1,425 others and relocated 76 during 2020’s first 10 months. The company also announced plans to spend $1 billion to $1.1 billion in its coming fiscal year on capital expenditures, including 2,900 real estate projects — 1,050 new stores, 1,750 remodelings and 100 store relocations.

Chief Operating Officer Jeff Owen said that works out to almost eight real estate projects per day for the coming fiscal year.

“We are excited to once again accelerate our real estate growth plans in fiscal year 2021,” he said. “Our portfolio of high-return real estate projects continues to be a top priority for capital allocation as we look to continue delivering long-term shareholder value. With a robust pipeline in place … we are enthusiastic about the opportunity to further expand our footprint and serve even more customers across the country.”

The plans come as Dollar General reported that its net sales grew 23 percent year over year during 2020’s first nine months to reach $25.3 billion. Same-store sales likewise expanded 17.5 percent, while net income grew 7.9 percent year on year to $2 billion.

Rival Dollar Tree, which owns the Dollar Tree and Family Dollar chains, reported similar strong results — and big expansion plans.

The firm said in November in releasing fiscal Q3 results that net sales grew 8.4 percent year over year during 2020’s first nine months to $18.7 billion, while same-store sales added 6.5 percent on a constant-currency basis. Net income likewise expanded 19.2 percent to $839.1 million.

And like Dollar General, Dollar Tree increased its footprint in fiscal 2020 and plans to do so again in fiscal 2021.

The company increased store count by 318 in fiscal 2020’s first nine months and said it expected to complete about 480 store openings and 750 renovations by the fiscal year’s end later this month. Dollar Tree added that it plans to renovate another 1,250 stores in fiscal 2021, spending about $1 billion in capital expenditures.

Department Stores Are Collapsing 

Of course, how many dollar stores wind up in struggling malls or shopping centers remains to be seen. But the growth certainly sounds more encouraging for malls than planned or recent store closings at JCPenney, Sears, Neiman Marcus and other once-common anchor tenants that declared bankruptcy.

Lord & Taylor — another frequent mall anchor tenant — not only filed for Chapter 11, but plans to close all of its sites, and even anchor tenants like Macy’s and Nordstrom that have so far avoided bankruptcy have been closing stores.

Macy’s recently began shuttering 45 stores as part of a three-year plan announced in February to shed some 125 stores, move others away from malls and/or convert them to smaller formats.

“We have an opportunity to build a broader yet integrated Macy’s experience within a metropolitan area by investing in our magnet stores, building freestanding Backstage locations and testing new, off-mall store formats,” Macy’s Chairman and CEO Jeff Gennette said in February in announcing the slimdown.

That might work for Macy’s, but it’s not good news for malls. However, dollar stores might take up some of the slack by growing their footprints rather than shrinking them.

Dollar Tree President and CEO Mike Witynski said in releasing the company’s latest earnings that “our focus will continue to be on opening new stores, refining our store formats and upgrading our assortment,” adding that “it’s an exciting time at Dollar Tree.”