The mad dash to the dollar shop

Although sticky summer temperatures linger, the realities of fall semester are creeping up on Sarah McManus of Salem, Mass. Soon, the Boston University senior will move out of a dorm and into an apartment on Beacon Street in Boston with a few of her friends.

So she drove to the Target in nearby Danvers in search of cheap, chic kitchen items and living-room decorations. But after browsing for several minutes, Ms. McManus left empty-handed and walked next door.

"I was at Target and everything is overpriced there, so I came here to see if things were any cheaper," she said, pointing to the Dollar Tree sign above her.

Target? Overpriced? Welcome to the age of the dollar store. These shops don't just stock dented cans of tomato paste, cracked sno-globes, or Christmas cookies in July anymore. They're quickly shedding their dingy reputation and attracting a legion of younger, more affluent shoppers like McManus by stocking more name brands - Crest, Brawny, Revlon, etc. - and invading the suburbs.

As the nation's economic woes persist and thrift becomes more fashionable, the dollar-store stigma is vanishing: Half of Americans who earn more than $100,000 a year have shopped at a dollar store, according to a WSL Strategic Retail survey. In addition, 43 percent of all Americans shop at dollar stores more than once a month.

To satisfy this hunger for bargains, the two biggest dollar store chains in the United States - Dollar General and Family Dollar - are breaking ground on new stores this year at a clip of more than one each day. These two companies operate more than 10,000 stores nationwide, nearly twice as many as six years ago, according Retail Forward, a market research firm in Columbus, Ohio.

The dollar-store boom represents a fundamental shift in the way American's shop, say retailing experts. They are snatching business from grocery and drug stores, and are nipping at the heels of other discounters, including Wal-Mart. Last year, consumers made more trips to the dollar store and fewer to the grocery store than in 2000, according to market researcher ACNielson.

"They're doing better than Wal-Mart and Target at attracting more and more new customers," says Michael Baker, a retailing analyst at Deutsche Bank in Boston. "They've gotten bigger and bigger, and become serious retail players."

Wal-Mart and supermarkets like Kroger and A&P have recently jumped on bandwagon by installing "dollar" sections in some stores.

Dollar stores began sprouting up after World War II in poor, rural towns that lacked grocery and variety stores. For decades, they were primarily a Southern phenomenon, slowly working their way from small towns to big cities, including Atlanta and Miami.

Then in the 1990s, dollar stores began rapidly expanding their geographic and socioeconomic reach by buying up vacant spaces in suburban strip malls across the country, explains Sandra Skrovan, the author of Retail Forward's dollar-store study. The definition of a dollar store is flexible - some like Dollar Tree sell every item for $1, while others like Dollar General and Family Dollar sell $5 and $10 items as well.

The pricing strategy also resonates with shoppers' desire for a simple shopping experience. "Finding something unexpected or stumbling on a bargain becomes a form of entertainment," says Michael Solomon, a professor of consumer behavior at Auburn University in Alabama.

Analysts say these ultradiscounters have concocted a successful formula to pull customers such as Sarah McManus away from standard discounters: Build smaller stores that are easier to navigate, with nearby parking so shoppers can get in and out quickly. Keep overhead costs low by limiting inventory. Spend sparingly on store decoration. And generate free publicity instead of paying for advertising.

One example: I.J. Rosenberg attracted more than 3,000 customers to the grand opening of his second Little Bucks store in suburban Atlanta last month by handing out fliers promising to sell nine televisions, nine Game-Boys, and nine Razor scooters each for 99 cents.

Rosenberg modeled the sales tactics after those of the 99-cent Only Store, a sleek West Coast chain that regularly sells Häagen-Dazs ice cream and $1 bottles of wine.

A sportswriter-turned-stockbroker-turned-entrepreneur, Mr. Rosenberg relishes being an upstart in a business dominated by huge chains. He says his store's size gives him the flexibility to buy small quantities of goods - sometimes just half a truckload - which have been turned away by other retailers.

As a result, he has been able to "blow out" 99-cent golf-club fobs, tennis shoes, and 6-XL T-shirts. Rosenberg once sold 5,000 15-pound watermelons in two days.

"People have a good time at my stores," he says. "They never know what's going to be in there."

Shopping for inexpensive goods - in part to experience the thrill of the hunt - is nothing new in America. In the first decades of the 20th century, five-and-dimes such as Woolworth's and Kresge's sprang up in industrial cities to sell working people, "good goods and plenty of them for fair prices," explains business historian and author Regina Blaszczyk.

These variety stores offered cheap products such as costume jewelry and kitchen gadgets. Factory workers, primarily female, could browse there after work. But after World War II, a confluence of factors - including the decline of industrial towns, suburbanization, and the rise of specialty retailers - led to a slow demise of the five-and-dime. In the 1980s, customers gravitated toward Wal-Mart, CVS, and Rite-Aid to purchase everyday items, Ms. Blaszczyk says.

Woolworth shuttered its last US store in late 1990s - just as dollar stores began expanding beyond their home turf.

Analysts expect dollar stores to continue to grow in the US over the next five years, adding that the Northeast and West are ripe for expansion. In addition, the stores are gaining more clout with manufacturers, including Proctor & Gamble and Hershey. The companies make specially sized shampoos and candy bars, respectively, just for dollar stores.

Dollar stores are also stocking more dairy and produce items, hoping to lure customers to visit two or three times each week. Every day, Little Bucks sells half gallons of milk, hot dogs, and fresh bouquets of flowers for 99 cents.

Yet as in other industries, rapid growth entails risk: Dollar stores may expand more quickly than they can build distribution centers and hire managers, says Ms. Skrovan. And in many respects, dollar stores are countercyclical businesses: When the economy picks up, fewer people will pinch pennies. Many may head back to full-service grocery and drug stores, she says.

And it may be difficult for dollar stores to win over skeptical customers such as Gina Mendez of Sherman Oaks, Calif. She says the 99-cent price tag "turns her off," because it give her the feeling that the product is cheap and poorly made.

But Ms. Mendez has not sworn off dollar stores. "Even though I hate them, I still go there with my friends," she says. "And if I go there I never come out without spending $20."