While most retailers saw their revenue take a serious hit in 2020, discount stores managed to thrive during the pandemic. That was due in part to them serving as an essential source of grocery and household items. They also offered an attractive price point at a time when so many Americans were out of work or risked falling victim to a similar fate.
Not surprisingly, Dollar General (NYSE: DG) had a strong second half of 2020, and this year's first-quarter sales came in strong at $8.4 billion. Furthermore, Dollar General managed to open up 260 new stores during the most recent quarter, something real estate investors should be unquestionably grateful for.
Many retailers have been forced to shutter permanently in the wake of the pandemic, leaving malls and shopping centers to grapple with vacancies. Not surprisingly, real estate investment trusts (REITs) that center on malls and shopping centers have taken a hit, as have the portfolios of the people who invest in them.
But Dollar General isn't just opening up a string of traditional stores. It's also experimenting with a higher-end version of itself that could prove quite successful -- and help occupy even more empty shopping center space.
Though Dollar General has traditionally catered to extremely budget-conscious shoppers, it's now setting its sights on consumers with more wiggle room in their budgets with its new Popshelf brand.
Popshelf features a selection of home decor, beauty products, and other household items at a price point of $5 and under. And its target audience has an annual household income of $50,000 to $125,000, which is much higher than the $35,000 to $40,000 annual household income a typical Dollar General customer has.
For some higher earners, pursuing deep discounts is a game of sorts. But some shoppers might turn their noses up at stores like Dollar General, writing them off as cheap and undesirable. By introducing slightly higher-end items, Dollar General is hoping to win some of those skeptics over.
Furthermore, now that the U.S. economy has improved, consumers have more options for spending money outside of discount stores. Popshelf could serve as a convenient step-up for those who were forced to stick to dollar stores during the pandemic but now want an upgrade.
More stores are coming
Dollar General is on track to add 50 Popshelf stores into the mix by the end of 2021. It's also planning to add 25 in-store Popshelf shops at its larger existing locations.
All of this spells good news for shopping centers, which need tenants to make up for the void the pandemic created. And at a time when retailers are increasingly looking to focus on digital sales, Dollar General and stores like it could serve the very important purpose of saving real estate investors from countless losses in the wake of widespread store closures.
If its Popshelf concept proves successful, Dollar General's footprint could grow even more substantial in the coming years. And who knows? It may even choose to experiment with different price points as consumers' needs evolve.