Dollar Stores versus Wal-Mart – The David and Goliath of the Retail Business

A battle is brewing is Canada and the U.S. to own the lower end retail market that will bring a whole new meaning to discount shopping. While mammoth Wal-Mart lost shoppers through the recession, discounts competitors have gained, in particular dollar stores, the real winners in the recent recession.

The battle front included not just low-income customers but also affluent shoppers who became more price conscious and discovered rock bottom prices and the convenience of dollar store shopping.

Dollar stores sales continue to grow post recession. These same customers keep on coming back to dollar stores that have widened their appeal by selling name brand goods and more food products. The strategy has resulted in record earnings in 2010 for U.S. chains, such as Family Dollar (6,600 plus stores), Dollar General (9,000 plus stores) and Dollar Tree (4,000 plus stores).

Recently Dollar Tree set its sights on Canada and purchased the Giant Dollar Store chain with 85 stores, a strategic move giving the company a foothold in western Canada and Ontario. It’s the first chain acquisition by a U.S.-based dollar store in Canada and more are forecast in the future.

Wal-Mart has always been the dominant player in the discount market but lost customers and revenue through its recent overhaul of stores and delisting of many brand name products. While dollar stores revenues will never equate a Wal-Mart, they have begun to chip away at Wal-Mart’s dominance with the sheer number of stores located on every other block.

Wal-Mart is certainly not resting on its laurels and is fighting back to win back its customers. The chain is again emphasizing its low-price guarantee and adding back thousands of products delisted in a bid to clean up their stores. Wal-Mart is also plotting an expansion into cities and developing a new downsized 20,000 square-foot store concept in towns to go head-to-head with dollar stores.

Another retail chain to watch is Target, Wal-Mart’s largest rival. Although its revenue is only one-sixth of Wal-Mart’s, Target has maintained its reputation for stylish clothes at low prices and has also added fresh fruits and vegetables to an expanded grocery section.

Target recently purchased the Zellers chain in Canada from The Bay and plans to open between 100 and 150 of its stores across Canada by 2014, as well as rebranding certain Zellers locations under the Target banner.

Canadian wholesalers and distributors supplying discount stores need to keep a close eye on the changing retail environment as the Wal-Mart, Target and U.S. dollar chains expand across Canada. Their enormous group-buying power to source products directly from suppliers overseas and their strategy to chop margins to the bone to offer their customers the lowest possible price will have a huge impact on the lower end retail market.

Small Canadian discount chains, independent mom and pop retailers, as well as wholesalers will find it increasingly difficult to stay competitive and businesses are expected to close.

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