The Dollar Dilemma: Dollar Stores Closing!

[00:00:00.380] - Alice

Welcome to Books in the Biz, a podcast that looks at both the financial and operational sides of success.

[00:00:07.640] - Alice

Please welcome our hosts, Dan Paulson and Richard Veltre. Dan is the CEO of Envision Development International, and he works with leaders to increase sales and profits through great cultures with solid operations. Rich is CEO of the Veltre Group and a financial strategist working with companies to manage their money more effectively. Now on to the podcast.

[00:00:30.710] - Dan Paulson

Ed, welcome to Books in the Biz. Rich, what do you think of Alice?

[00:00:35.550] - Rich Veltre

Alice is awesome. She's my best friend.

[00:00:37.240] - Dan Paulson

Alice is awesome. We are using that AI technology in the cheesiest way possible. So here we are. Crazy. It's crazy stuff out there. Well, we'll talk about podcasts being too cheap to hire professional help for the moment. We're going to talk about something else this morning in the dollar range. So we're going to talk about dollar stores today.

[00:01:00.460] - Rich Veltre

Okay. Sounds good to me.

[00:01:03.250] - Dan Paulson

Do you have any dollar stores out by you? Are dollar stores a big thing in New York City?

[00:01:08.780] - Rich Veltre

Yeah, there's a few of them around here, all competing. But the more you drive around, you do see them. I know there's one very close to where I live.

[00:01:20.980] - Dan Paulson

There seems to be dollar stores everywhere around here. So for us, the bigger ones tend to be Dollar General because they tend to open up in the smaller towns. Then I see, usually, Family Dollar and some of the other ones in a little bit larger Metro areas. So it's interesting that they splice things up like that. But what led us to actually talking about this today was a couple of different things. And to be honest, no dollar store is safe, right Rich? That's right. The ones that are doing good or having their own problems, we're going to talk about that today. But dollar stores impact us in a lot of ways. I I don't know. Again, I don't shop there that much. You don't shop there that much. But they tend to open up in lower income areas. They tend to push out more of what I would say the mom and pop shops because they can't compete with the volume pricing. And quality of products aren't always the best. I mean, again, the whole idea of a dollar store is you're trying to compete for a dollar. But even then, it's not always that way, is it?

[00:02:29.700] - Dan Paulson

It seems It's like they have started increasing their prices, and they're no longer a dollar anymore. But we came across this this breakdown of why dollar stores are bad. And what do you think of it when you read through it, Rich?

[00:02:45.700] - Rich Veltre

I'm about a 50/50 promoter/non promoter of what they said in the article.

[00:02:53.020] - Dan Paulson

What would you promote?

[00:02:56.270] - Rich Veltre

Look, I think the fact that you're putting a dollar store in a lower income area. Yeah, you probably are. You want to criticize that? Okay, but that's their strategy. They want to sell things for a dollar. The quality of merchandise, I totally agree. I think that's not necessarily a good deal. I think everybody wants to get something for a dollar, but we don't want to fall apart before we get to the car.

[00:03:22.730] - Dan Paulson

Right.

[00:03:23.830] - Rich Veltre

So I mean, I've seen a lot of people wrapping paper, balloons, things for birthday, stuff like that. Party City already went out, I think, around by May. I don't know if you have a Party City or had a Party City by you, but they went out by May. So now it's the dollar stores. You need a balloon for a kid's birthday party. Where do you go? You go to the dollar store. So I think some of that is definitely promotable, non-promotable. I mean, it's definitely argumentable.

[00:03:56.250] - Dan Paulson

Well, what I see the big criticisms are is, Most of the food that's sold there is processed, canned. The frozen stuff is frozen pizzas, whatnot. So their argument is, well, you don't get any quality food from a dollar store. And I don't know if that's true or not. I would guess it's more like a convenience store where it tends to be more shelf stable food type items. But to your point, as you point out, the strategy of a dollar store is to go into maybe a lower income area, where they probably don't have anything. They don't have a full on grocery store. I don't know how much they talk about food deserts out in your neck of the woods, but that sometimes is a bigger discussion around the Madison area, when I watch the news where a grocery store pulls out. When a larger chain leaves a neighborhood, now there's no groceries, and you got to commute further to get food. Dollar stores do fill a niche, and I think part of the And the reason why they fill that niche is because of their affordability. They are more likely to appeal to an audience that maybe doesn't have a lot of money.

[00:05:11.240] - Rich Veltre

Yeah, I think the one by me, it was interesting to read the article because it reminded you that other areas of the country are different. The Dollar Tree, I think it's Dollar tree that's by me, there is no produce section. There's no food. There's literally none of that. There's no refrigerated section. Essentially, if it can go on a regular shelf, then it works at that store. The article mentioned other places where people are literally getting food to eat, dinner type food to eat. And it throws you off because you say, okay, well, then I have to take into consideration the fact that Dollar Tree in North Jersey is going to be different than Dollar Tree in South Jersey, even though the buildings look the same.

[00:06:00.650] - Dan Paulson

Well, and Dollar Tree in Madison, for example, is different than Dollar Tree out where I live in Dodgeville. There's one, I believe it's either Dollar Tree or Dollar... It's not a Dollar general. It must be a Dollar tree that's located across from the Walmart. So here's your options. You go to Walmart or you go to Dollar Tree. Now you can go to the regular grocery store. But again, prices differ in all three of those places, and what you get differs in all three of those places. So it It does serve a particular group of people. I think there is a need for it out there. It's hard to make an argument that they should go away because, okay, you take the dollar store away in some of these communities. What else do you have left? You have nothing. And I have my spot down in Missouri, right? So I'm driving through a ton of small towns, and most of them have a Dollar General that you go past. Well, you take out the Dollar General, there's no grocery store. All you have left are basically bars and convenience stores. That's really about it. So your quality isn't improving any by taking it away and saying, well, it's bad for you.

[00:07:07.990] - Dan Paulson

So there is a need there. But at the same point, dollar stores seem to be struggling a lot. So We can sit here and rip on them all we want, and that's not the point of this. They're still struggling. So here we go. Dollartree, for example, closing a thousand stores, including 600 family dollar locations. This one, DollarTree closing 600 stores. But these articles are just a few days apart. So now they've decided to close even more stores. And I mean, what do you think is the reason for this? Is it inflation? Is it they've oversaturated the market? Why are dollar stores now struggling to keep business going?

[00:07:55.200] - Rich Veltre

I don't have all the answers. I can give you what I think, and I think some of it goes goes along the same lines as the big box retailers, right? I mean, malls around me are empty, so you're not getting the same foot traffic. Now, in remote areas, I don't know. I think this is where my head has to go around the first point that I made, that different parts of the country are struggling with different things. But these guys are big corporations. These are thousands of stores across the entire country. So certain stores probably aren't doing as well for what I just said, that there's no foot traffic. People are buying off the internet. Well, now we got a whole other segment to talk about because who's ordering their food that's being delivered to them and they're no longer going to something like DollarTree. So I think that there's a major trend here also in just the commercial real estate or retail real estate section of it that you have to take into account. Is DollarTree... Because the one thing I do want to mention before I forget, the thing that I really liked in the articles was how detailed they were on these guys know what their cost is, per square foot of the store.

[00:09:14.780] - Rich Veltre

They sat there and they told you, this is what you have to hit. If they're not hitting that, they know that that store is not doing well. It's not satisfying what they need in order to cover their own costs. So they were down to the square foot. I think it was It's $260 per square foot that they have to make per year off of these stores. So you start taking that stuff into account. And that's really where I think you're starting to realize that's why these stores are saying, we can't do this in this particular store, Because we're not hitting the numbers we need to in order to stay alive as a whole.

[00:09:49.550] - Dan Paulson

Right. And I agree with you there. And I also like what you brought up about the different demographics, because I do believe that you take a look at, for example, a dollar tree in a town of 4,000 to 5,000 people is going to function quite a bit differently than something that might be in a larger Metro area with several hundred thousand people. That's where I think the saturation comes in, because as you pointed out, you're dealing with pennies, you're not dealing with dollars in most cases. A dollar store, if they're selling something for a buck, a buck 25, your margins are pretty small, where you're making it up as you're selling a large quantity of it, possibly over multiple stores. But that's really where a lot of that comes in. So you're looking at it from the finance side, which I understand, and I look at it from the operations side. I'm like, well, if you got on a block, for example, you have a Walgreens or a CVS, you have several convenience stores, you now have three or four dollar trees. That foot traffic you're talking about has multiple places to And the question is, for example, if the dollar tree actually does carry food, if the only thing they carry are canned goods, for example, but you can go to the convenience store and you can at least get some basic staples like milk, maybe in some cases, produce, And we have some convenience stores out here that almost act as mini grocery stores in some ways.

[00:11:20.340] - Dan Paulson

You also have other stores that do provide maybe more variety or slightly better quality. And the Dollar Store is left to hanging, because as you point out, who needs balloons all the time? You're going to need that a couple of times a year. So the only reason if you're going to the dollar store is to get that cheap stuff that you don't want to pay $10 at the floor shop for a mile our balloon, you can get one for a fraction of that price at a dollar store, you'll go there. But if the frequency of your traffic drops, then your cost per square foot is definitely going to be an impact on that.

[00:11:57.520] - Rich Veltre

Agreed, agreed. I Yeah, I'm trying to think with the one that's near us. I mean, we're tight population. New Jersey is one of the most densely populated states of the entire country. So we're packed in over here. So when you don't see foot traffic in certain malls, certain stores, you start to look at it and go, something's off. It's just odd. Is Is it the fact that the Dollar tree is now charging a dollar and a quarter or a dollar and a half, which we all noticed? I mean, you walked in and you went to get something silly that you always paid a dollar for, and all of a sudden, you had to reach back in your pocket to get the extra amount that was over. So you didn't quite know right away that was this because of their change in the policy, or is it just because this is the trend? Or I really don't have a great answer as to why, but I do see that there's the volume of product in there is going down.

[00:13:05.240] - Dan Paulson

Right. And for me, you brought up before, well, could they be shopping on Amazon or using some other method to get there? I guess if you look at the target audience that the dollar stores tend to go after, they're not going after people who are going to spend an extra 10 bucks on, say, DoorDash to bring them food from somewhere or go to Amazon Prime and order their food there. And also, once you get out into more rural areas, Amazon doesn't deliver groceries. So you're paying that upcharge if you want that product. Now, again, there seems to be a typical clientele that tends to go to more of the dollar stores. Even when I go over to Walmart, for example, we've all seen Walmart has its niche audience as well, and you got the dollar store across the street. Are the same people shopping at both locations? Yeah, probably so. But the people that are really going to be more cost-conscious for various reasons, are probably going to pick the lower cost of the two. Do you have any Aldi's up by you? Are you familiar with Aldi?

[00:14:20.430] - Rich Veltre

Yeah.

[00:14:21.400] - Dan Paulson

So Aldi hits a particular niche. You're not fitting in with your upscale grocery store, but you're not probably at dollar store level. They're somewhere in between. But there are people who are raving fans of Aldi, for example. I think that's one of the things that seems to be lacking also with the dollar stores is in their identity, their identity is on cheap products, staying within that even dollar range. So it's a dollar, it's two dollars, it's four dollars, it's five dollars. And that's taken a hit over the economy and over the inflation. So I'm wondering if maybe some of that is because prices and inflation have pushed costs up, which have them pushed their prices up, because it was probably what, two years ago when they brought up that dollar stores were no longer dollar stores. They were buck 25 or buck 50. But they were trying to stay to round numbers, but they were still now having to raise their prices to meet those demands. And I'm just curious if that is a further sign of inflation where dollar stores are killed because now their prices are coming up enough that even the cheap stuff is getting to be as pricey as the stuff you would go somewhere else to get.

[00:15:40.180] - Rich Veltre

Yeah. I mean, you have to think that that is probably a significant I get a portion of it. I'm also still looking at it from the standpoint of these are big corporations, right? And if I take the dollar store part of it out and just say, okay, well, it's still a big corporation with a lot of locations And so the question then you have to throw on top of it, is it just over saturation? Is DollarTree now so big with so many stores that one store is competing with another one? I have two Walmarts within a couple of miles of each other. I mean, that right there tells you that doesn't make a whole lot of sense. So now you add in the dollar tree. And as you said in the beginning of the podcast, you got them all over the place. So do we. So do you just have too many and that dollar per square foot becomes unsustainable?

[00:16:38.120] - Dan Paulson

There is a lot of truth to that. I do believe it's... You've even seen that with Walgreens, for example. Are Walgreens or CVS bigger up by you?

[00:16:46.920] - Rich Veltre

I have one across the street from the other.

[00:16:50.080] - Dan Paulson

Okay. So they compete with each other right there and you can pick and choose. But no, even Walgreens, I think, has gone to closing some stores because the the volumes. There might be some other reasons behind that, too. But they also are looking at profit per square foot or cost per square foot. And you are seeing a lot of contraction going on. And as you pointed out, some of these stores, they can be sitting across the street from each other, and you wonder how they make it. I always wondered that about convenience stores, and I learned from my father-in-law, it's like, well, convenience stores have two different traffic patterns. So the reason two stores can function across the street from each other be profitable, is one's catching morning traffic coming into town, the other one's catching evening traffic going out of town. So it's two different audiences there, because people tend not to want to take a left turn to get into something. They want to take a right turn so that they can get in and get back out on their way. You don't have that luxury with a dollar store, a Walgreens or anything like that.

[00:17:52.880] - Dan Paulson

I think that's more destination driven than anything else. And yes, there are too many. That could be a problem. You know So as I was looking through and doing some research on this, it seemed like most of the stores were taking a hit, with the exception of Dollar General. So for whatever reason, Dollar General, for the most part, has, I won't say gone unscathed, but their model seems to be working. I think that is because they tend to stay out of Metro areas and really focus on the small towns. I have seen Dollar stores literally in the middle of nowhere. It's the only thing There's nothing else around it. And they obviously built it there for some reason. I'm sure that's because there's probably two or three towns of maybe a thousand people or less that are close by that will all go there because there's nothing left in town anymore. Like I said, maybe a bar or two, but that's going to be about the extent of it. So if you need anything, this becomes your location to go. At the same point, though, Dollar General has not left unscathed. So you You talked about these are big corporations.

[00:19:02.960] - Dan Paulson

Big corporations still have a lot of people working for them. And what was interesting, this is actually a local situation that made national attention. I don't know if you heard it on the news out by you, but I did hear it on some of the national news stations around here. And as it turns out, we had a Dollar General where all the employees quit on the same day, and just locked the doors and shut the store There's some challenges that come with these large companies. And as I pointed out, Dollar General is one of those that has a little grocery store section in it. So I'll give you the premise of what's going on here. The employees saw a product that was going bad on the shelf. And Dollar General does have a policy where certain products are donated to local shelters or food pantries or whatever like that. But there was a lot of products that weren't... They weren't being shared that way. They were just thrown in the garbage. And the store manager at the time got upset and decided that they weren't going to... They had talked to the corporate part of the business, and didn't want to do anything about it.

[00:20:23.950] - Dan Paulson

They're like, no, and just throw it away and be done with it. So that was one of the reasons that they said they left. The The other one was due to pay and poor treatment. Now, that always seems to be a common argument or a common reason why people leave. And we've all probably heard stories of other companies or other stores that were closed because all the employees quit at the same time. How do you deal with that when corporate America maybe has a different mentality than what the people at the local level see as how they can contribute and be a bigger part of the community?

[00:21:00.000] - Rich Veltre

I think that the big corporation has a problem of being distanced. The vision of the leader up on the ivory tower I think one of the articles said, how do you deal with the fact that the CEO of the big company made 936 times the same number as the person who runs the store and has to do over time, but then isn't paid over time because they're called a manager. So I think those issues run rampant. So that's part of the thing when you look at it, everybody's criticizing the dollar store. But I'm sure I could find that 936 times number somewhere in another corporation that's not a dollar store. The CEO of a big company, I mean, yes, they have a lot of responsibility and a lot of their knowledge from other experiences that they use and they bring and that's why they're making more money. But there's a lot of people who have decent criticism saying, the company lost a ton of money, but the CEO got its entire salary. It becomes one of those things where the most successful company, I think, is going to be the one that has a more local connection, understands what's happening at the local level, and actually finds some balance there to justify what they do on a day to day basis, and where the employees actually understand and like what they're doing and like the people that they work for.

[00:22:41.950] - Rich Veltre

And I think that speaks to what you do in finding the company culture and really getting people all behind the same motivator, get them behind the same track.

[00:22:53.460] - Dan Paulson

Yeah. But that also speaks to what you do, because the reason why we have the dollar generals and the dollar trees is because when you look at that cost per square foot, and when you look at what that one mom and pop shop has to pay for the same goods that, say, a dollar general or a family dollar does, economies of scale. So larger company buying larger volumes across multiple stores is going to get a much lower price than the one-off shop where that owner has to go out and buy those goods to put on the shelf. And that to me is probably the biggest negative of this. I believe there is an advantage to dollar store types. We used to see them as surplus stores back in the day, but what they were buying was all goods and products that were either at or near expiring. So you go in there and you buy your bag of nuts and, oh, gosh, this was expired six months ago. Well, that's why you got it for 10 cents, because somebody bought a lot of it, and that's what it was. Yeah, I think it's going to be a challenge that many companies are going to face.

[00:24:05.010] - Dan Paulson

It really boils down to if you're going to survive in a smaller community or you're going to go up against some of these larger companies, even in a larger community, It really does boil down to that culture. It boils down to building something that's so unique that people will gravitate towards what you're offering, because it becomes more than the product then. And that's not easy to do. I mean, there's only a handful of companies that are willing to put forth that effort. Everything gets focused on price. And of course, here's what we see when everything becomes focused on price, price becomes the lowest common denominator, which allows these companies to come in and take over these smaller towns. And now that's the only thing you have. And then when they have trouble, and now they close down their business, now you're left with nothing. So I think as human beings, we should look beyond just that lowest price. But that is extremely hard to do because we're all price conscious.

[00:25:04.170] - Rich Veltre

Yeah. It's unfortunate, but I think it's a little scary because you don't want that to be the ongoing trend. When I'm sitting down and I'm looking at, well, what's the future look like? And you're putting together that corporate plan or even a personal plan, a budget, looking at that. And you say, well, how am I coming up with these trends? The new trend seems to be thrown up in the air a little bit. Because Price is a major factor, especially when you're telling people to continue to live on the same path that they've been on, but it's getting more and more expensive.

[00:25:40.230] - Dan Paulson

Yep, but it's a race to the bottom. If you're going to fight to be the cheapest, Eventually, you reach a point where nobody can be the cheapest, and the guy with the most pennies wins. Once they win, of course, then they're the monopoly, and that's what really shuts everything down. So I think as business owners, you really need to look at this and say, how do I compete at this level? You need to invest more time in figuring out what your unique strategy is, what your service model is, because people will pay for service. I don't know of a single person unless they, again, economically are so low that they won't spend the money where they want to when they feel like they're getting the value out of it. Now, they won't do that across everything, but that's where they make choices. And if you're going to get them to make the choice to you, you have to offer more than what your competitor doing. And that's something you really need to look at. Rich, that is pretty good discussion here, but I think we should wrap up. So how do they get a hold of you?

[00:26:41.560] - Rich Veltre

All right. So best way for me, usually is an email to rvaltry@valtrygroup. Com. And Dan?

[00:26:48.480] - Dan Paulson

They can find me anyway at danpaulsonletsgo. Com. There's a place where you can book a meeting with me, so feel free to check that out.

[00:26:56.650] - Rich Veltre

And real quick, just to remind everybody, Please subscribe, like, reach out to us. We're always looking for people to give us what's the topic. It helps us understand what our audience is actually looking at, what they're actually seeing, and gives us the opportunity to develop a show around that. So please remember, like, subscribe, get a hold of us, and get in touch.

[00:27:20.720] - Dan Paulson

Yeah. And if you know of a business owner that you think would be a good fit to bring on, we would love to have them. You've seen what our interviews are like. I think, though, we are going to go with one interview instead of breaking it out into smaller chunks. It's nice to have those 10 to 15 minutes. It's creating a lot of work for me, though. I'll be honest with you. That gets to be a lot of work. And I also see that everyone watches the first couple, then it tails off after that. So I think if we can get it in one shot, that's what we're going to do in the future here. But Rich, thanks again for joining me. And maybe next time we will have somebody on to interview. Who knows? Sounds good. So until next time, we will see you all later.

[00:28:00.450] - Rich Veltre

Right. See you later.

Links:
https://ilsr.org/17-problems/#:~:text=While%20dollar%20chains%20look%20for,target%20Black%20and%20Brown%20neighborhoods.
https://youtu.be/a4RRj7MNRUw
https://ilsr.org/17-problems/#:~:text=While%20dollar%20chains%20look%20for,target%20Black%20and%20Brown%20neighborhoods.