Over the last several years there has been a significant shift with many retailers adding a broader assortment of consumables, especially grocery, to drive trips and customer relevancy, but longer term are they at risk of losing the ability to differentiate?
There is no question that many general merchandise retailers have been very successful allocating more floor space to grocery and consumable skus to drive sales. Just think about where Wal-Mart is today verses ten years ago. A whopping 55% of Wal-Mart’s sales are driven by Grocery and Consumables. The dollar stores have been drastically cutting back their apparel, home, and seasonal space to add additional food and HBA product. The initiative has certainly been successful as the two top dollar store chains increased sales over the last three years by $6 billion, but are they at risk longer term?
Beyond seasonal, the treasure hunt experience is almost non-existent at the dollar stores today, and they continue to take away space from the home and apparel areas. It has been a challenge for them in the discretionary product categories. Certainly some of the issues have been driven by the recession and the pressure on lower income consumers, but it could also be driven by not providing a compelling enough discretionary assortment that resonates with their consumer. Their mix shift appears to be opening up opportunities for other value oriented retailers.
Even though still relatively small, Five Below, which targets the teen and pre-teen consumer with fun lifestyle merchandise priced under $5.00, has been doing extremely well, growing sales by 40% LY to $418 million and new stores by 27% to 243. They have taken a different approach than the traditional dollar store, staying away from commodity type consumable products, and focused mainly on the fashion and fun side of the business. Their stores engage their consumers through differentiated product and unique display techniques. It’s exciting to watch them grow and develop, and will be interesting to see if they can maintain their relevancy with the capricious teen shopper.
It’s certainly not all or nothing for a retailer when deciding between consumables and discretionary goods, but about the appropriate mix based on their customer’s needs and desires, and the retailer’s ability to execute. The ability of an organization to sell discretionary goods requires not only some additional risk taking but also the ability to innovate and drive excitement for the consumer. Those that do are successful, and in some cases, those that don’t look to stay relevant with their customer by adding more consumables.