Development Issues Loom for Greenback Shops

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Construction Concerns Loom for Dollar Stores

According to the Boulder Group's 2020 Net Lease Dollar Store Report, dollar stores saw strong sales in the second quarter as cap rates fell.

Part of their success comes from the niche they have created in small towns and rural America.

"The dollar stores have positioned themselves in the small American town as a local general store," said Randy Blankstein, president of the Boulder Group. "They had a good niche.

But there are some concerns for dollar stores. "I think the longer-term concern is how long they can sustain this construction and development boom before it saturates the market," says Blankstein. "That is an open question."

The numbers for 2019 show how much supply is coming onto the market. Dollar General has 975 stores online, while Dollar Tree and Family Dollar add 320 and 226 stores, respectively, according to Blankstein.

“When Starbucks was building stores across the street in the big metro, there was a point where there were just too many,” says Blankstein.

Dollar Tree, which Family Dollar acquired in 2015, primarily operates in urban strip center stores. But Family Dollar and Dollar General compete against each other in smaller markets. Blankstein says these two companies compete against each other to get into smaller markets.

"Some of these markets are really small, and if you're the first, the second company will think long and hard about whether it's ready," says Blankstein. "So there is a little race to be first in town, develop the habits and get your competitor to think twice about whether they want to be second." Blankstein currently sees no slowdown in the new offer. "It's easier for them to keep expanding if their stocks are doing well, the businesses are doing well, and they have no problem getting the properties off their books and getting developers to build them for them," says Bright stone.

Blankstein believes the sector will continue to do well for the next few years, but then there is uncertainty. "I think it's clear in the short to medium term, but there are longer term questions," says Blankstein. "If you are an investor buying an asset with a term of 15 years, you have to think long-term."

While this 15-year lease may give investors a break from the oversupply, it's also a huge benefit in these turbulent times.

"There aren't many investment-grade, 15-year-old business deals for less than $ 2 million," says Blankstein. “There were times when there was too much and too little on offer. But right now, people (investors) are devouring the offer. "

As these dollar stores build, expect strong investor interest in the purchase. In a recent survey by The Boulder Group, the majority of net leasing participants (62 percent) expect transactions in dollar stores to increase in the last two quarters of 2020 compared to 2019. and dollar retailers' national expansion plans will maintain supply regardless of their increased demand, ”the Boulder Group said in the report.

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