The War Between Amazon and the Dollar Store Sector

As we continue to grow into a digital age, we see more and more retailers developing their online presence to have a wider reach with consumers around the world. This is how Amazon become the shopping behemoth we know today. As a result, different brick-and-mortar stores struggle to create a business plan that addresses Amazon’s competition and eventually fall to the wayside. One sector, however, has not seemed to be taken aback from this competition—the Dollar Store sector.

The phrase “Amazon Proof” refers to the sectors unaffected by Amazon—that is, they are shielded from online disruptions and able to stand up and compete for business. That has tended to be the case for dollar stores, whether it be Dollar General, Family Dollar, Dollar General, or even Five Below. In this current climate, these stores have flourished—we see a continued uptick in sales on the net lease market, especially Dollar Generals. (I think it’s more we see an uptick in the number of new dollar stores on the market—not that more are selling).

Why might this be the case? Most likely it stems from the plan to put these dollar stores in low income areas, both rural and urban, the low prices of their goods, and the fact that their products are usually rotated.

Amazon is gearing up to compete though. News is out that for $1 items, Amazon will actually provide free shipping with the caveat that they need to be a Prime member. As a result, traditional dollar store shoppers will be able to stay home and have all their goods sent directly to their door.

Rural locations would likely be the biggest area affected. If someone absolutely needed to make a purchase they know with Amazon they won’t have to think twice about online ordering since the shipping will be free, and they could have a larger selection of goods as well.

If Amazon is able to have the kind of impact it is seeking, it could have an impact on the sector and the net lease market. If Amazon is able to overtake a good amount of business, what would that do to the value of stores, and the prices and caps they have been trading at? We would potentially see a dramatic fall in value. Companies would have to evaluate current expansion plans and how to keep revenues up. Will Dollar Stores still be as valuable on the net lease market as well with that competition? There would only be one way to find out.

With number of net lease Dollar Stores continuing to rise, it’s clear the economics of the sector are strong. This could be the first great challenge it has seen though, and it will be interesting to see how the market reacts.