One of the key factors that we think people are missing in the Dollar Store space is quantification behind the number of boxes needed, the saturation by MSA, the proximity to competing formats – and dominance (or lack thereof) in MSAs where WMT is rolling out neighborhood formats. The reality is that there are 35,000 dollar stores in the US. The consensus call is “why?”. Anecdotes are fine, but only quantification of a supply/demand balance matters on the numbers. The reality is that we have a database of every property across every format in the country (it took a decade to build). We can do the analysis where others cannot.
The end research call, in reality, could go either way. But given the incremental interest (there’s a lot), the fact that the stocks have underperformed the S&P by 20%, and the RTH by 10% since the Aug peak, AND the fact that there’s $47bn in cap in the space – I think there’s a call to be made here – especially given that economic growth has accelerated while Amazon’s de-facto square footage growth is unquantified (we’ll quantify it) while it is shifting towards a sub-prime consumer (the core dollar store customer).
The retail reflation/competitive shift/consumer wallet growing call might be consensus for this space. So is the consumer confidence bifurcation trend, the paycheck cycle, tax refund timing, blah blah blah. But that’s the easy call. The much tougher one is quantifying the real supply/demand in the space in aggregate. There’s a call to be made, and we’re going to make it. Stay tuned for 2Q Black Book.
