Dollar Stores: Getting More Bang From the Buck

Dollar stores won Walmart customers during the recession — and plan to keep them

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Brian Ulrich

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The dollar stores are nervous, though, because the world's largest retailer hovers over them. "Walmart always worries me," says Levine, the Family Dollar CEO. "You can't out-Walmart Walmart. The dollar stores are not going after the same trip Walmart is going after. We're going after the fill-in trip. We live off the crumbs they leave us." Walmart is not going to allow itself to be underpriced on critical items like diapers. In Charlotte, for example, a pack of 42 size-2 Huggies diapers retailed for $10 at both Dollar General and Family Dollar and $8.97 at a nearby Walmart. Sometimes Walmart even beats Dollar Tree, the buck-only store, at its own game.

The dollar stores can live with those battles, but the retail giant may be preparing to move directly onto their turf by building small stores. Walmart is scouting locations for urban stores — smallmarts — which could steal some fill-in traffic from places like Dollar General and Family Dollar. "Walmart is not a dodo bird," says Richard Hastings, a strategist at Global Hunter Securities. "If you start to wake them up, boy, they're going to start pecking away at you."

That's why the dollar stores are working to build loyalty and capitalizing on shifts in consumer thinking. In Charlotte one evening, Lisa Abrams-Coltrane, whose work hours at Hardee's had been cut over the past year, was making one of her frequent trips to Dollar Tree. Though Dollar Tree doesn't offer as many consumable items or national brands as its competitors, Abrams-Coltrane was grabbing things off the shelves as if they were apples off a tree, hurrying to make her bus. Hamburger buns, a package of french fries, Palmolive dish soap and Vlasic pickles are all in her cart. She paid $10 for 10 items and bounced out of the store. "Now you see everyone and their mother in here," Abrams-Coltrane says. "Everybody is trying to get a deal."

Some of her friends still won't set foot in a dollar store. A few years ago, she might have felt the same way. Now? "I'm like, Why are you so afraid?" she says. "You find it demeaning? I don't understand that. At this point, there are like 4,000 of these stores around here. Someone's shopping at them. And it's not all poor people."

This is an updated version of a story that originally appeared in the December 20, 2010 issue of TIME.

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