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A new study from Retail Forward suggests that small format value retailing, including dollar stores, will remain a “high-growth darling of food, drug, and mass retailing over the next five years.”

“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 vice president with Retail Forward. “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,” she adds.

Retail Forward projects 8,000 more stores to 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 the last 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 last 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.

Next to supercenters, according to Retail Forward, dollar stores remain the fastest growing channel among food, drug, and mass retailing. And while the weak economic climate of recent years may have initially driven shoppers to “try” small format value retailers, leading players in the channel are extending their appeal to multiple consumer segments. According to Retail Forward’s ShopperScape™ consumer survey, over one-third (36 percent) of all US households regularly shop the format on a monthly basis.

As for the future, “Rapid growth will likely strain the existing infrastructure of leading dollar stores and other small format value retailers,” Skrovan says. “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.”
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