Dollar Stores Are the Kings of Cheap
When most people think of shopping at dollar stores, they think about practical and low-cost items. Ted Bauman offered some advice in his latest newsletter that centered around some of the country’s most popular dollar stores. As someone who experienced the stress of running out of money before he became a successful investor, Ted understands how important dollar stores are to many budget-conscious Americans. He is known for suggesting safe and sensible investment options to average people. Ted’s advice about dollar stores is likely to surprise new investors and even some experienced ones. Educated in South Africa and in the United States, Ted holds postgraduate degrees in business administration, history and economics.
Dollar Stores Are Growing Rapidly
Ted Bauman is no stranger to research, and he researched his latest suggestion carefully. In the past, he spent hours doing in-depth research to provide the UN, governments and other important organizations with solutions for urban development and government policy formation. He served in multiple executive positions in South Africa before he came to the United States and became an investor.
According to Ted Bauman’s research, three new dollar stores open each day. He said that they now make up the business category with the fastest growth rate in the country. In his newsletter, he wrote about taking a trip to a dollar store in a small town. Although the town had only a few businesses, it drew customers from surrounding towns because it had a dollar store. When the top discount retail stores such as Walmart, Kroger, Walgreen’s and several others are combined, the total number of dollar stores in the country still beats that group’s total. Ted said that dollar stores will grow to a total of at least 38,000 across the United States within the next few years.
Ted noted that the improving economy and the falling unemployment rate may leave some people puzzled as to why dollar stores are becoming more popular. Income has not improved much during the last several years. In addition to this, people pay more for vehicles, rent, mortgages, health care and other living costs. This leaves most Americans struggling to stay within a budget, and the low prices of dollar stores give them essentials such as paper towels, canned foods and cleaning supplies for lower prices than those of the biggest discount stores.
Another reason why dollar stores are growing is their simplicity. There are no frills and no special departments like there are in major discount stores. Their bulk purchasing capacity gives them the power to offer rock-bottom prices. In addition to saving consumers money, these stores limit their own costs by setting up shop where land is cheap. Dollar Tree has a price model that makes everything $1 or less. Dollar General is another big competitor, and its prices are low but even dollar amounts. In comparison with a Walmart store, Ted said that a dollar store is about 1.6 percent of the cost to operate. It is easy to see why these stores are thriving and growing.
Which Store Does Ted Bauman Recommend?
Dollar Tree and Dollar General are the two leaders in the market. In 2015, Dollar Tree acquired Family Dollar to expand its reach. However, Family Dollar stores have been negatively affecting Dollar Tree’s performance. This is because Family Dollar stores have a price structure where everything is $10 or less rather than $1 or less, and the stores face tough competition from Walmart and other discount retailers. The chain recently announced that it may close several Family Dollar stores in the next few years.
Dollar General’s performance was strong during the past year. Although it does not offer everything for $1 or less, it opens many stores in rural areas where people often do not have access to competing dollar stores or discount retailers such as Walmart. Between Dollar General and Dollar Tree, Ted recommends Dollar General as a smarter investment. These are his reasons based on his research:
- Dollar General’s finances and profitability are better.
- Dollar General’s ROE is almost six percent higher.
- Dollar General’s ROA is about two percent higher.
- Dollar General’s management structure is superior.
- Dollar General does not have as much debt.
- Dollar General has a stronger financial capability to expand.
Once again, Ted Bauman showed his ability to pick the most sensible option in a fast-growing market. These are the types of recommendations that he makes to his Banyan Hill followers. In addition to his Plan B Club newsletter, he authors Alpha Stock Alert and The Bauman Letter. Ted Bauman has been with Banyan Hill since 2013.
What Investors Need to Know About Dollar General
Dollar General’s shares gained about 25 percent between the beginning of 2017 and early 2018. With a modest average sales receipt of $12 across all of its stores, purchase statistics show that most customers make frequent trips for at least a few items each time. Since about 75 percent of Americans live within a five-mile radius of a Dollar General store, the company’s reach is expansive. The store’s net profit margin for most items is between five and six percent. These are three important things for investors to keep in mind about Dollar General in the next few years.
The company will expand its merchandise. Dollar General sells plenty of dry foods, canned goods, refrigerated foods and frozen foods. However, it does not have produce. The store plans to change that in the near future with up to 25 percent of its “traditional plus” stores to start offering some fresh foods. This is a great opportunity since shoppers thrive on convenience and prefer a one-stop shop for everything from fresh food to cleaning supplies.
Dollar General will open many new stores. The chain is growing at an astounding rate. It opened about 1,000 new locations in 2017 and planned a similar number for 2018. In 2018, the store had its highest same-store sales stack in a decade. As indicated in the previous section, the company will invest in its current locations in addition to creating new ones.
Sales will likely increase. Dollar General’s CEO is confident that net sales will continue to grow despite expansion activities and competitors beefing up their efforts. From visually guiding customers toward top-selling SKUs to reorganizing checkout lines for optimizing impulse buys, Dollar General is taking every possible step to maximize profits through innovation.
As he concluded his letter, Ted Bauman mentioned the criticism of Amazon monopolizing its market. He pointed out that Dollar General is doing the same thing in the low-end retail market. However, people who regret not making an investment in Amazon in its early days have a chance to invest in a company that may become a giant in the future. With his background in economics and low-cost development planning, Ted Bauman is a reliable source of advice for practical investment strategies.