Dollar Stores Opened 700 Doors in Q2 — Should Fashion Brands Be Worried?

It’s around noon on a summer Tuesday — just a day before the start of back-to-school for most children who reside in and around this North New Jersey suburb.

Business at this particular store is booming.

A wall of casual sneakers in a range of patterns and colors — as well as in mesh and canvas materials — is mere steps away from a selection of trendy socks and legwear. There’s even a few pairs of sandals and ladies pointed-toe flats – available in leopard or black. Near that is a whole section rimming over with beauty products: lipsticks, eye shadow palettes, mascara and finger nail essentials.

But, this isn’t your neighborhood fashion destination: This is a dollar chain. This is Five Below.

While fashion retail shoulders a lingering pruning phase — marked by high-profile bankruptcies and massive brick-and-mortar downsizing — a resounding theme has been the persistent resilience and agility of off-price players like Marshall, TJ Maxx, Burlington and Ross.

But what about their even lower-priced peers?

For what it’s worth, Dollar Tree Inc. (now parent to Family Dollar) and Dollar General — with their modest assortment of apparel and footwear basics like undergarments, t-shirts and socks — have never really been more than a dot on fashion’s radar, noted Joe Feldman, senior managing director and assistant director of research at Telsey Advisory Group.

“The truth is these [dollar chains] don’t have much footwear at all — it’s very limited in scope,” Feldman added. “They might carry some flip flops or [lightweight clogs] that are similar to Crocs.”

Still, with Five Below — the newer of the dollar chains — building its core business on more fashion-focused items like novelty socks, sunglasses, jewelry, scarves and athletic wear, The NPD Group Inc.’s Beth Goldstein said she wouldn’t completely rule out the opportunity for such chains to snap up greater fashion market share. (All items in Five Below are priced at $5 and under; Dollar Tree’s products are $1.)

five below store
Footwear on display in a Five Below store.
CREDIT: Courtesy

“It’s true that discount retailers and dollar chains are opening new stores as other types of retailers close doors,” said Goldstein, who serves as NPD’s executive director and industry analyst for accessories and footwear. “Consumers are looking for value and these [retailers] now have more opportunity to market themselves in ways they weren’t always able to — given all of the available channels today.”

Indeed, stoked by Payless ShoeSource’s second and final bankruptcy this year, the closings of hundreds of Sears and K-Mart doors as well as the Dress Barn liquidation, retail this year has seen an unprecedented number of stores shutter. (A report by Coresight Research last week estimated announced U.S store closures could reach 12,000 by the end of 2019.)

Meanwhile, Dollar Tree, Dollar General and Five Below have managed to fete nearly 700 combined new doors in Q2 alone — the bulk of which were Dollar General outposts as the retailer chips away at its list of 975 planned store openings for 2019. (And all three firms are saw revenue gains in Q2, with Dollar Tree posting a 4% improvement to $5.7 billion; Five Below gaining 20% to $417.4 million; and Dollar General surging 8% to $7 billion.)

Fast-growing Five Below — the smallest of the three but arguably the most significant (albeit still small) threat to footwear and apparel sellers — opened 44 new stores during the second quarter and ended the period with a staggering 833 stores in 36 states.

And with some economists predicting an economic recession and newly-imposed tariffs expected to drive up prices across all of retail, one could argue that there is further opportunity for lower priced firms to snap up more fashion market share. (Goldstein estimates dollar stores’ fashion market share is currently well below 1%.)

“With tariffs, many retailers could raise their prices — relative to each other,” explained Goldstein. “[Couple that with a recession] and, in such a scenario, there is some potential you could see shoppers who typically spend with mass retailers trading down to dollar chains.”

five below store
A wall of beauty products at a Five Below store.
CREDIT: Courtesy

While Feldman suggests it’s more likely that many consumers will simply buy less apparel and footwear should the economy enter a recession and/or tariffs drive up costs — as opposed to switching to dollar chains for their fashion wares —  he and Goldstein agree that, for now, dollar chains will have a ways to go before they are formidable players in the fashion space. (And it’s unclear whether such firms have such a goal to begin with.)

“I’d argue that discounters like TJ Maxx and Marshalls are more likely to take market share from [traditional] footwear brands,” said Feldman. “And with big box chains like Walmart, Amazon and Target upgrading their private label fashion, I think they pose more of a threat.”

Marshalls, storefront
Three factors are causing deflationary pressures that could impact growth in the off-price channel.
CREDIT: Shutterstock

What’s more, noted Goldstein, when it comes to footwear, product quality (think comfort elements, customization and fit) plays a significant role in purchasing decisions — as well as causes like sustainability and ethical sourcing. Those factors could curtail dollar chains’ ability to enter the fashion space at scale.

“Today’s consumer is savvy,” said Goldstein. “When it comes to footwear, they value quality and look at factors like where the product is made and whether it’s sustainable.”

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