Not all retailers are trimming back their brick-and-mortar footprints.
Dollar stores and off-price chains, taking advantage of solid sales and bargain-hunting shoppers, are on an expansion kick, claiming half the spots on a list of 10 retailers adding the most new store square footage, according to commercial real estate and analytics firm CoStar.
Dollar General, second overall, led a trio of dollar stores in CoStar’s top 10, based on retailers’ announced U.S. store openings as of the second quarter of 2016.
Dollar General, which started the year with nearly 12,500 stores, has announced plans to open 900 more this year and another 1,000 in 2017. Last week, the chain said it’s looking to hire 10,000 new employees by mid-October.
About 80 of this year’s new Dollar Generals will be roughly 20 percent smaller than typical locations, designed for urban areas where larger stores would be too costly or rural areas with fewer potential customers, spokeswoman Crystal Ghassemi said earlier this year.
Family Dollar will add about 4.3 million square feet of retail space, and Dollar Tree — which acquired Family Dollar last year — is adding about 3.2 million, according to CoStar.
Part of the appeal is convenience, which makes a big network of stores important. Dollar stores also tend to drive growth with new locations, not big growth in sales at existing stores, said Hunter Harris, vice president at consulting firm Boston Retail Partners. Dollar General’s comparable store sales were up 0.7 percent in the second quarter of 2016 over the same period last year, while Dollar Tree’s grew by 1.2 percent.
Big-box chains could start trying to match their prices, so keeping that growth going is “not going to be an easy task,” Harris said.
If more people begin purchasing basic consumer goods and personal care products online, a big retail footprint could become a liability if stores can’t find ways to stand out, said Steven Barr, PricewaterhouseCoopers’ U.S. retail and consumer sector leader.
But the price point “clearly has resonated,” even with higher-income customers and deal-hungry millennials, Harris said. Chicago has a Logan Square Dollar General and a Dollar Tree in Lakeview. “We see them popping up in neighborhoods and regions you wouldn’t have expected to find them 10 years ago.”
Similarly, off-price chains Marshalls and T.J. Maxx — sixth and seventh on CoStar’s list, with plans to add 3 million and about 2.9 million square feet, respectively — draw customers with the “treasure hunt” of finding a deal, Harris said.
Parent company TJX Cos. reported a 6 percent increase in sales at stores open at least a year in the first half of the 2017 fiscal year.
Relative outliers on the list were specialty retailers Dick’s Sporting Goods and Bolingbrook-based cosmetics retailer Ulta Beauty, both of whom appear to be taking advantage of “strong market niches,” said Neil Stern, senior partner at Chicago-based consulting firm McMillanDoolittle.
Ulta, which carries a wide selection of beauty brands across a wide range of price points, has been on a growth tear, opening at least 100 stores a year since 2011, according to a statement from Dave Kimbell, chief merchandising and marketing officer.
Ulta had 907 stores as of July 30, and sales at stores open at least 14 months were up about 14 percent in the second quarter of 2016, the company said in August.
“They had a vision that the customer wanted a hyperselection of cosmetics and beauty,” Harris said. “If you have an innovative mix, the consumer responds.”
Many customers still like to shop for cosmetics in person, where they can test products. And unlike specialty retailers that focus on a particular trend and risk being left with lots of stores and few sales when customers move on, Ulta can swap in new brands and products as needed, he said.
Wal-Mart led CoStar’s list with 11.2 million square feet of new Super Centers — including Illinois locations in Olympia Fields, Richton Park, Centralia and Carpentersville that have opened this year, and another in Homewood coming in October — and 3.8 million square feet in smaller-format Neighborhood Market stores, according to CoStar.
But Wal-Mart also is reducing about 2.2 million square feet of Super Center space, according to CoStar’s data. The retailer also recently shut down its Wal-Mart Express stores, which at 13,000 square feet, were less than half the size of a Neighborhood Market, to focus on its other store formats, said spokeswoman Delia Garcia.
The list counts new square footage, not new stores, potentially leaving out fast-growing retailers with a smaller footprint, newcomers starting with a small base or those that haven’t made big announcements around future store growth plans. It also leaves out retailers that are still bullish on brick-and-mortar but opening fewer, more upscale stores, Barr said.
“You see a lot of doom and gloom, but for retailers with a really innovative product, really good service, or where it’s very clear to the customer what they’re doing and why they’re different, the consumer will find them,” Harris said.
Here’s the list of the 10 retailers that have announced the most new square footage as of the second quarter of 2016, according to CoStar:
1. Wal-Mart (Super Centers and Neighborhood Markets), 15,020,000 square feet
2. Dollar General, 6,529,566 square feet
3. Forever 21, 5,700,000 square feet
4. Family Dollar, 4,272,893 square feet
5. Dollar Tree, 3,210,000 square feet
6. Marshalls, 3,007,000 square feet
7. T.J. Maxx, 2,873,989 square feet
8. Dick’s Sporting Goods, 2,650,000 square feet
9. Tractor Supply Co., 1,860,000 square feet
10. Ulta Beauty, 1,170,000 square feet
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