Tough times for regional dollar stores

Everything's 20 percent off at the Dollar Days in Superior, Wisconsin, a good-sized stand-alone store that may be too close to the Wal-Mart next door.

Gene Marshall recently was picking through the store's discounted merchandise, which includes things like food and handy household items.

"Yeah, I go to these all the time, dollar stores, all over the place," said Marshall, a retiree who lives in Florida in the winter and Superior in the summer. "Save a lot of money here," said his wife, Marie.

"It's something that they need. Nobody's rich today anymore, except the rich rich," Gene Marshall said.

Superior-based Dollar Days is going under, closing the last three of 10 stores than once employed 150 people from Duluth to Brainerd, Little Falls, and St. Cloud. Dollar Days is closing just months after Fridley-based Big Values Inc. shuttered ten Big Dollar stores in Minnesota and North Dakota.

Dollar Days owner Dave Stock said his customers are losing a good deal.

"Our day-in-and-day-out customers are very sad to see us go," Stock said. "I have a lot of customers that said they really depended on what we were doing."

Stock said he can't keep the shelves filled with inexpensive food items he can afford to pass on for just a dollar.

The store sold a mix, including some outdated, slightly damaged, or over-stocked products, but those things are getting more expensive and harder to find.

"As times have gotten tough, folks such as Kellogg's, Keebler, they used to, if something went bad on the assembly line they'd throw a box in a Gaylord (a shipping box)," Stock said. "The Gaylord would eventually end up in a dollar store where the $3 box of Keebler cookies would go for $1. Well, they finally figured out that 'maybe we'd better not have so much breakage and so much loss.' So all of the sudden, those items are not available anymore."

If you're at that $1 price point, you can't raise your price to offset your increased costs.

Meanwhile, the cost of transporting the store's merchandise can be killer. Stock said a truckload from California used to cost $2,000. With soaring fuel costs, it's now $4,000. But his price to the customer is stuck in place.

"If you're at that $1 price point, you can't raise your price to offset your increased costs," said Stock.

When he did try pushing prices above a dollar, Stock said customers pushed back.

"They wanted it for a dollar. Period. End of conversation. And they were going to teach us by not buying it if we tried to go over a dollar," Stock said.

Stock's stores tried to stick to the dollar-for-everything model. But a set price can be a dangerous trap for a retailer.

"With that dollar price point the way to preserve margin is to shrink the product size," said Mitch Kaiser, a retail industry analyst with Piper Jaffray and Company. "Well, when you have eggs and milk and things like that, yeah, the price is sky-rocketing on those products. You can only shrink the product size so much."

But Kaiser said the larger dollar store chains like Dollar General, Family Dollar, and Dollar Tree, are prospering despite rising expenses.

The larger companies have advantages the little guys don't, like the ability to negotiate better prices with manufacturers. And, to succeed in the low-price, low-margin arena, a store has to get everything right, from store location and size, to product mix and price.

Family Dollar, the national chain, is adding 200 stores this year to their 6,400 stores in 44 states. Spokesman Josh Braverman said they do it with quality merchandise, smaller stores, and neighborhood locations.

"If someone doesn't have to drive five or six miles, that's going to save a little bit of gas for the folks," Braverman said. "So I think the people are taking advantage of stores close to where they live and I think Family Dollar is well positioned to take advantage of that."

That lesson hits close to home. Superior's Family Dollar is alive and doing well, while Dave Stock's Dollar Days will close for good in a couple of weeks.

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