Blog

In the past couple of years, the retail-based commercial real estate sector has faced many challenges, but after years of ups and downs, it is now experiencing a comeback. For the first time since 1995, more stores were opened than closed in 2021. Additionally, according to The Wall Street Journal, U.S. retail vacancy dropped to 6.1% in the second quarter of 2022. This is the lowest it has fallen in at least 15 years. One particular segment that has consistently shown favorable trends is the discount retail sector. 

 

Discount retailers have become increasingly popular among consumers in the United States and have demonstrated resilience even during times of economic uncertainty. While many other businesses were wiped out in the “retail apocalypse”, discount retailers such as Dollar Tree, Family Dollar, and Five Below continue to see a year-over-year visit growth. Dollar Tree, for example, has consistently reported strong earnings and revenue growth over the past several years. With an 8.1% increase in sales during Q3 last year, bringing in as much as $6.94 billion, it begs the question, what is driving this growth?

 

Unique Business Model

Discount retailers like Dollar Tree differ from conventional retail stores thanks to their distinctive business model. These stores offer a wide variety of goods for incredibly low prices, commonly for just $1 or less. Most of their products are usually from private label brands, providing a better handle on margins. Because they do not have to spend as much on marketing, advertising, or store design, they frequently have lower running costs than other retailers. This business model has shown to be very successful in luring price-conscious customers who want to save money on basic necessities and those looking for a good deal on particular goods.

 

Economic Resilience 

One of the most significant advantages of investing in discount retailers is their ability to weather economic downturns. As observed during the initial months of the Covid pandemic, an increase in interest rates, inflation, and the possibility of a recession causes consumers to reduce their overall spending and tighten their budgets. As a result, discount retailers prove to be more resilient in this situation as they not only retain their existing customer base but also attract new customers who are looking to get more from the dollar. 

 

Market Agility

Discount retailers are able to move swiftly and adapt to shifting trends in real time, unlike traditional retailers, who may take months or even years to develop and implement new products or marketing strategies. As a result, they are able to take advantage of any opportunities that present themselves, such as the introduction of new products or modifications in consumer preferences. Due to their ability to remain one step ahead of their rivals and hold onto market share, these retailers have a distinct advantage in the increasingly competitive retail environment.

 

Attractive Investment Returns

Investing in low-cost retailers like Dollar Tree is also attractive since they are able to provide consistent returns to investors. This is due in part to their ability to operate with lower profit margins than traditional retailers, which allows them to generate higher sales volumes and attract more customers. Their high customer loyalty base also sees that customers return again and again, ensuring a constant revenue stream. While many retail stores are adjusting to the “new normal,” discount retail is thriving. Investors are enjoying unique benefits, such as discount retailers signing long-term leases, which continue to provide them with a stable source of passive income.

 

As an investor, an investment in discount retailers like Dollar Tree could prove to be a smart move, given their proven success, instant brand recognition, and developed customer base.

 

If you are interested in investing in a discount retailer, visit our Sales & Leasing page to find available properties.