Dollar Tree, a major player among US discount stores, has unveiled the first of its forty super-sized stores planned for 2003. This ambitious foray of discount merchandisers, expanding into larger sized stores and diverse product offerings, is posing a challenge for traditional retailers and mass merchandisers alike.

Dollar Tree’s super-sized store represents an important departure from the traditional perception of dollar stores. The new store is about 14,000 square feet larger than the typical Dollar Tree mall store. The store features party supplies, snacks and food, health and beauty products, and a department it identifies as “for all seasons”.

This strategy of adding larger stores with a broader product offering has catapulted dollar stores into the mainstream. As the fastest growing retail format in America, dollar stores pose a very real threat to traditional retailers.

Dollar stores once served low-income areas. Today they are popping up in affluent neighborhoods like Beverly Hills. With shelves stocked with quality private label and brand name offerings, they appeal to bargain hunters from every economic background – 40% of households that earn more than US$70,000 a year regularly shop at dollar stores. The softening economy is only likely to add to this impetus.

Dollar stores are also making inroads in areas supermarkets once had cornered – for example, sugar confectionery is a best seller at dollar stores. Even with their mere 4% share of the market, dollar store candy sales are worth $400m.

The threat to traditional convenience retailers has grown in the past couple of years, as dollar stores have modified their product mixes to give more preference to grocery items in place of apparel goods. In addition to making dollar stores’ product offerings more similar to supermarkets, this move has enhanced their growing appeal to middle-income consumers.

Even giants like Wal-Mart, A&P and Stop & Shop are threatened by the dollar store invasion. Wal-Mart is currently testing dollar-only aisles in certain stores, while across the country supermarkets are responding by installing dedicated value priced sections. As dollar stores strive to give consumers bang for their buck they will also give retailers a run for their money.

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