The coronavirus pandemic has battered retailers and forced many large chains to contemplate store closures in the wake of lost revenue. But there's one type of retailer that's managed to thrive during the pandemic -- discount stores.
Dollar stores have done notably well over the past year for a number of reasons. First, their reasonable price point tends to draw in shoppers on a budget, as many consumers have, in fact, needed to cut back on spending as the pandemic slashed their income.
Parents have also grappled with the almost impossible task of keeping their children busy in the absence of having places to go or full-time, in-person school to attend. As such, they've turned to low-cost activities as a means of retaining their sanity.
It's not surprising, then, that one discount chain is making plans to capitalize on all of that recent success. Five Below (NASDAQ: FIVE) recently announced it will be opening between 170 and 180 new stores this year. That's on top of the 120 locations the retailer managed to open up last year.
Good news for real estate investors
Five Below is filling a major void in a market where toy and hobby stores are either limited or offer higher-priced products that don't fit into many consumers' budgets. Furthermore, whereas other retailers -- notably, big-box stores -- might adopt the strategy of becoming one-stop shopping destinations for customers who will, in turn, spend a substantial amount of money at each visit, discount stores like Five Below aren't looking to eat up a third of the typical consumer's paycheck per shopping trip. Rather, they're able to offer a varied enough -- and competitively priced -- selection that customers are willing to make repeat trips to stock up.
Discount stores also appeal broadly to younger consumers -- teens and college students who tend to enjoy shopping as a means of entertainment but don't have the funds to pay up for higher-priced goods.
While Five Below doesn't take up nearly the same amount of square footage as, say, a supermarket or department store, and as such isn't generally considered a shopping center anchor tenant, it still has the potential to evolve into an increasingly reliable tenant in the near term. And at a time when so many retailers are closing stores, that's a good thing for shopping center REITs (real estate investment trusts), which need all the rental revenue they can get.
Of course, Five Below isn't the only discount retailer that's done well in the course of the pandemic. Dollar General (NYSE: DG), Dollar Tree (NASDAQ: DLTR), and Burlington Stores (NYSE: BURL) have all announced plans to open more stores this year coming off a strong 2020. And those openings, combined with Five Below's plans, could bail a lot of commercial landlords out at a time when a major vacancy crisis might otherwise loom.
That should, in turn, give real estate investors who own shopping center REITs a good reason to breathe easier -- and it may even inspire more investors to add those REITs to their portfolios.