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How thrifty millenials are driving dollar stores

| International retailers

Shopping for a theme party, Lindsey Ellefson was greeted by name at her local dollar store. Her friend laughed at what a regular the 24-year-old New Yorker had become at the discount shopping palace. Ellefson shrugged it off. “We joke all the time that I would shop at these kinds of stores no matter how much money I had.”

One of America’s millions of price-conscious shoppers, Ellefson is passionate about getting a deal. The freelance writer texts her friends when she sees an especially good dollar store discount. She haggles with the cashiers at the independently run retailer when she feels a product is overpriced. As a member of the nation’s most indebted and underemployed generation, Ellefson isn’t ashamed of her discount-shopping ways: “I’ve never experienced any kind of shame or stigma - thankfully.”

She is not an outlier. The retail model that began more than a century ago as the “five-and-dime” is back, and it’s gone big. Dollar shopping is attracting consumers across multiple demographics, including America’s wealthiest. Households with an annual income of more than $100 000 make up 19 percent of the spend at national dollar store chains, comparable to the 23 percent that comes from households with an annual income of less than $25 000, according to a July report from retail analytics firm NPD.

The main difference between the 1 percent and the 99 percent is how frequently they turn to dollar stores: Lower income shoppers come in more frequently and spend more. Considering that the average employed millennial earns just $34 100 annually, it’s logical that this generation would drop more dollars on the discount products offered by the likes of Dollar Tree, Dollar General, and 99 Cents Only Stores.

Retailers are understandably eager to get their hands on a chunk of the $600 billion annual spending power of the millennial demographic. Though Dollar General didn’t return a request for comment, the company’s chief executive, Todd J. Vasos, said during a first-quarter earnings call that millennial shoppers make up about a quarter of the company’s sales line.

“The millennial shopper is a segment that I was particularly excited to see emerge as a core consumer for DG, as this segment is so important to the future of retail and Dollar General,” Vasos said.

At 99 Cents Only, a West Coast-based dollar store chain, shoppers aged from 18 to 39 make up 36 percent of consumers. “With millennials, there is no stigma with them shopping at dollar stores because they grew up in a different environment than our parents, who covet things,” said the chain’s director of marketing, Erin Estelle. “We’re more frugal because we’ve had to be ... There’s no shame in that, and millennials know that.”

They’re not the only ones to realise this. Late last year, Target Corp. revamped its dollar section by rebranding it Bullseye’s Playground after the company’s canine mascot - and adding slightly higher-priced items that appeal to millennials. The demographic has long been the company’s mainstay, and its dollar offerings are so popular that they’re resold on craft website Etsy Inc. at a markup. The Target relaunch has led to double-digit growth in that department, Target spokeswoman Amy Koch said.

Online marketplace

But just as quickly as dollar chains have proliferated across the country, the online marketplace has begun to catch up. Around the time Target was trotting out its dollar pup, Hollar launched, seeking to marry millennial enthusiasm for online shopping with discount goods.

Hollar sells items cheaper than $10 and applies the same business model as traditional brick-and-mortar dollar stores, rapidly sourcing an ever-changing array of items, from stuffed unicorns to mason jars to baby booties. A third of the company’s business comes from the toy section, and the average customer is a millennial-aged mom living in middle America. However, twentysomethings and thirtysomethings furnishing their first home may make up a substantial chunk as well, seeing as 15 to 20 percent of Hollar’s business comes from home goods sales. The discounts are steep: An Essie nail polish that sells for $9 on Inc. costs $3 on Hollar. A hairbrush that retails for $7 at Wal-Mart Stores Inc. is less than half the price on Hollar.

To grab the millennial dollar, Hollar has made an effort to differentiate itself from other low-cost shopping competitors by eschewing Dollar Tree’s bulk orders and Amazon-style add-on pricing. Instead, it offers free shipping for $25 carts. (Dollar Tree, which declined to specify how many millennial shoppers it has, said in a statement that it serves a “broad age range of customers, including millennials, that love the fact that every item in the Dollar Tree store is priced at one dollar.”)

“It’s a new space for the dollar item,” Hollar director of merchandising Michelle Andino, 32, said. “It was a new concept where I don’t have to shove my kids in the car and lug them to the dollar store. I could have it delivered to my door—and I don’t have to buy in bulk.”

The most notable difference is Hollar’s dedication to mimicking a high-end shopping experience, further removing the customer from the dusty, fluorescent-lit aisles of the real thing. While Dollar General’s website leads with a banner about “hot deals” and digital coupons, Hollar posts bestsellers in a colourful layout and doesn’t use the phrase “dollar store.” An account is necessary to browse the site, likening it more to Gilt Groupe Inc. and RueLala - websites that offer limited-time discounts on certain items.

Hollar, which is, after all, a one-year-old startup, has yet to turn a profit. Despite millennial enthusiasm about dollar shopping, dollar store earnings suffered last quarter. Dollar General missed second-quarter estimates and Dollar Tree reduced sales expectations, both in part because of limitations on food-stamp enrollment.

But Wall Street remains optimistic about the future of this segment. “The dollar stores business has been increasingly getting healthier and better,” said NPD chief retail analyst Marshal Cohen. “Expanding their products to be beyond the dollar certainly helps.” He added that the millennial focus on spending on experiences rather than possessions also helps drive dollar store spending. (There’s also the matter of the crippling debt millennials face.)

Regardless of what the dollar industry cooks up next, millennials will likely be willing to try it—and tell one another about it. And what about that vague self-consciousness that comes with buying a cheesy dollar-store tchotchke? “You’ll see people that are really owning things that used to be kind of embarrassing; you’ll see people wearing it like a badge of honour in my generation,” explained Ellefson. “I think that’s kind of cool. Millennials are not interested in being shamed about things.”


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