Jonathan Hipp
That means dollar saves. Brands in this stable category of the net rental sector are increasing service and planning to capitalize on the growing trend towards "customer experience".
Take Dollar General. According to Business Insider, DG will be rolling out FedEx drop-off and pick-up services in 8,000 stores in the coming year, which will benefit both geese and viewers. The springboard for this push now begins with 1,500 first locations to be added this year. Not only will the additional service bring more people into the store – at least that's the theory – but, as BI points out, it will also make FedEx services accessible to a wider audience.
And as for geese, Dollar Tree is trying to raise the profile of its beleaguered Family Dollar chain by introducing alcoholic beverages – for customers, not management, just to be clear. According to the Motley Fool website, given alcohol's lower profit margins, alcohol is viewed more as a mere sales strategy, although one accompanies the other.
All of this comes at a particularly interesting time in the evolution of net lease retailing (by the way, retailing in general), and other categories are following suit. Walgreens and CVS, as just one example, are fighting their own trade wars by venturing to walk-in medical centers. And fast-service restaurants are once mere shopping centers.
Why? With the likely exception of these medical services, all of these concepts are easier to manipulate from the buyer's home computer. We can even get our Big Macs and Slurpees through GrubHub.
We all know by now that internet sales and brick and mortar stores have to coexist in order to survive. Hence the move to omnichannel strategies that some – like Home Depot or Macy – are doing so well. But brick-and-mortar vendors still need feet to cross their welcome mats, and such product and service enhancements seem to be the ticket for dollar stores.
And that's a good thing for investors, possibly at least if the strategies are making cash registers ring. Buyers are more eager than ever to future proof their net rental investments. First and foremost are the real estate – the good locations in highly frequented areas with long-term rental agreements for reasonable rents. Long-term focus there. Investors want confidence in their purchases without having to rent again if a strategy fails and the occupant becomes free.
Our latest research shows that dollar store leases that shifted last quarter averaged north of 11 years, compared with 9.3 years in the first quarter. Investors like these odds and place their bets at cap rates that have been going down since the first three months of the year. The cap rates for the second quarter were 6.45 percent – slightly higher than the total net rental average of 6.32 percent. But it's actually lower than the dollar store category in Q1–7.26 percent.
The dollar clearly has value. It will be interesting to see if these new strategies improve or detract from that value.
The views expressed here are from the author and not from the ALM real estate media group.
