Dollar General is shaking up the dollar store vertical and going upscale—at least as upscale as $5 will get you. The focus of the shake-up is “Popshelf,” a spin-off brand said to target well-to-do suburbanites by offering home goods and toys for five bucks or less.
It’s a bold move amid the bloodbath of store closures. But Dollar General is clearly not your average retailer. “We are excited to introduce Popshelf from a position of strength,” said Dollar General CEO Todd Vasos in a printed statement.
Indeed, the numbers back up Vasos’ claims, certainly from an investment standpoint. According to Retail Brew, the retailer enjoyed a 19-percent spike in sales from the first quarter to the second quarter. Economic slump? What economic slump?
Turning to the broader picture, our own research reveals that, along with the pharmacy sector (no surprise there), dollar stores were the strongest performers in the net lease space. Dominated by two credit-worthy brands, the sector saw cap rates jump from 6.94 percent to 7.11 percent from the first quarter to the second. Deals were backed by the further security of leases with an average 12.8 years remaining on their terms. The sector was the only one to see a hike in activity quarter to quarter, from 64 to 77 trades.
Low investment risk
With Popshelf, Dollar General intends to expand that secure investment picture, though rollout is relatively conservative. Starting with two stores in the suburbs of Nashville, Tenn., (the corporation is headquartered in Goodlettsville, Tenn.). Dollar General plans for 30 locations by the end of fiscal year 2021, all suburban and all targeting customers who are, as the printed statement reveals, “primarily female and … with a total household annual income ranging from $50,000 to $125,000.” It should be noted here that each location promises to add 15 jobs to the local economy.
In a risky retail environment, Dollar General’s strong performance—buoyed further by a strong sector—seems to carry as little investment risk as can be expected, and it’s another safe bet to assume market watchers will be doing just that … watching. And as we saw last year with the competitive push by pharmacies to expand their platforms with walk-in clinics, we can also expect a response parlay by the store’s competitors. That also can be good for investors if they are done right.
No one ever said 2021 wouldn’t be interesting.
Jonathan Hipp is a firm principal & head of the U.S. Net Lease Group of Avison Young.