It seems like an ordinary retail transaction: Mid-America Real Estate Corporation’s net lease investment group recently closed the sale of an 8,320-square-foot Family Dollar store in Indianapolis.
But such sales are becoming a trend. Few sectors of the retail segment are as hot today as dollar stores. Not only are investors purchasing these businesses with increasing frequency, the three major players in the dollar industry are opening new stores across the country at a brisk clip.
And Tom Fritz, vice president in the Oak Brook, Ill., office of Mid-America Real Estate Group, says that dollar stores aren’t about to cool off.
“The consumers today are still discount-minded,” Fritz said. “So these companies have had increasing sales, store counts and sales-per-square-foot each of the last five years. The dollar concept is still very attractive to consumers.”
The dollar business is dominated by three major brands: Dollar General, Family Dollar and Dollar Tree. Of the three, Dollar General is leading the way in the number of stores and total revenue, Fritz said.
Dollar General is a profitable, too. The average Dollar General store generates $180-a-square-foot in revenue. The average Family Dollar store earns about $145 to $150 in revenue for every square foot.
Dollar General is also attractive because it offers more aggressive leases. Fritz said that Dollar General will often offer 15-year leases. Family Dollar stores usually offer just 10-year leases. Because of this, Dollar General usually trades 50 basis points higher than its rival Family Dollar.
“If you are a developer looking to build either a Dollar General or a Family Dollar, you will usually go with whichever option offers the better lease terms,” Fritz said. “Otherwise, the businesses are similar. Dollar General is more aggressive in the leases it offers, so that makes it more attractive to developers.”
Dollar General today boasts stores in 40 states. It opened its 11,000 store on Oct. 5 in Goodlettsville, Tenn.
Family Dollar is enjoying its own success. The company announced that its total net sales for the fourth quarter of fiscal year 2013 increased 5.8 percent from the same quarter a year ago to hit $2.5 billion. Gross profit in the fourth quarter of fiscal 2013 hit $868.4 million, an incerase of 8.6 percent from the same quarter one year earlier.
Dollar Tree reported in August that its consolidated net sales for the second quarter came in at $1.85 billion, an 8.8 percent increase from the same time period in 2012.
