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COLUMBUS, Ohio - Small-format value retailing, including dollar stores, will remain a high-growth darling of food, drug, and mass retailing over the next five years, according Retail Forward in a recently released Industry Outlook report, "Dollar Stores and Other Small-Format Value Retailers."
"The small-format value retailing sector is on a rapid expansion trail, and market saturation is more than a decade away," says Sandy Skrovan, author of the report and a Retail Forward v.p, adding, "We expect market leaders to continue their rapid growth course, extending their appeal as a convenient, easy-to-shop value alternative to big-box stores."
Retail Forward projects that 8,000 more stores will open in the next five years, and anticipates the pace of sales growth for small-format value retailers to be as strong in the coming years as it has been for the past five.
Small-format value retailers grew nominal sales at an average annual rate of 6.1 percent (5.6 percent after removing inflation) over the past five years. Retail Forward forecasts sales growth of 7.5 percent in 2004 and an average annual pace of 6.2 percent through 2008 as the channel continues to benefit from continued rapid expansion, same-store sales growth, and efforts to increase shopper traffic, shopping frequency, and average ticket size.
While dollar stores and other small-format value retailers have sustained solid financial performance in recent years, sustaining performance in the years to come might prove challenging as the store base becomes larger and units mature. "Rapid growth will likely strain the existing infrastructure of leading dollar stores and other small-format value retailers," says Skrovan, noting that players in this sector will need to continue investing in infrastructure -- e.g., distribution and logistics network, inventory controls, and other information systems -- to stay ahead of the expansion curve.