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Deep Dive into Beauty in Dollar Store Channel

June 11, 2021 Faye Brookman
June 11, 2021
Popshelf

There’s been a lot of buzz recently about beauty and the dollar channel. The potential is huge. There are more than 35,000 value stores across the US of all sizes and with varying commitments to beauty and personal care. No matter how you slice it—that’s more than Walmart and Target domestic doors combined.

Big chains like Family Dollar and Dollar General are posting notable gains in doors and dollars. Dollar General will open more than 1,000 doors this year. Its sales jumped almost 22% in its fiscal 2020—two times the gains of Ulta Beauty.

Plus, Dollar General has a sparkling new format called Popshelf that is targeting a slightly higher-income consumer ($50,000 to $125,000 versus $30,000 to $40,000). There are only about six at this time, but plans call for 50 more this fiscal year. Dollar General will kick off a pilot that blends together its namesake brand and Popshelf at 25 stores where the latter will be situated as a store within the store. Dollar General also operates DGX, smaller footprint locations with a wide range of personal care and cosmetics. One shopper questioned while stocking up on mascaras said she had no idea it was a dollar store format; she thought it was rather a drugstore like CVS.

"The Dollar Store customer deserves access to good quality, clean, modern beauty products at an affordable price."
By Scott Kestenbaum, Senior Vice President, Maesa

Five Below is another value darling and it will add up to 180 new stores this year. The company reported quarterly results last week, with net sales for the period ending May 1 coming in at $598 million, up 64% compared with the same quarter in 2019 and 198% compared with 2020, when COVID-related store closures reduced sales. The company is also testing out slightly higher prices in a new category called Five Beyond where some items are sold for more than $5. The company is running on reduced hours and has raised minimum wages to offset the current labor shortage, said CEO Joel Anderson.

Family Dollar and Dollar Tree are looking to leverage their joint strength in co-branded stores. The combination stores started quietly in 2019, and there are now more than 50 units of the merged model that melds the higher prices of Family Dollar with the bargain $1-only tickets at Dollar Tree.

There’s also opportunity at a retailer not as well-known, but posting eye-popping gains in urban markets with value pricing called Citi Trends. The retailer’s first-quarter 2021 sales soared 145.8% to $285.4 million compared to $116.1 million in the first quarter of 2020 and up almost 40% over 2019. David Makuen, Chief Executive Officer of the 354-store retailer that operates in 33 states, has pledged to build Citi Trends into a $1 billion retailer by 2022 (he recently noted that goal is ahead of schedule). Although not as big as apparel or home, beauty/personal care is a core category within the stores with brands including Kiss, SpaScriptions, and LaFlare in its arsenal.

The potential in value prompted incubator Maesa Group to create proprietary brands. Dollar stores are also fertile ground for L.A. Colors, Maybelline, and myriad textured hair brands.

“While often overlooked, we see the value retail sector as one of the most interesting and underserved segments of American retail,” said Scott Kestenbaum, Senior Vice President at Maesa.

Maesa has three exclusives at Dollar General—Believe Beauty (which launched with 144 items of makeup and is now up to 260 SKUs including nail and fragrances), Root to End haircare, and goodbaths, a 65-SKU personal care and home products line priced under $6. “Every woman walking through the door of a Dollar General has beauty needs and wants, no different than a woman walking through the door of a Walmart. The Dollar Store customer deserves access to good quality, clean, modern beauty products at an affordable price,” Kestenbaum said.

HatchBeauty Brands also entered the value market two years ago with the purchase of Duncan Enterprises and its Remi Rose and BE Beauty Essentials. Those two brands, said HatchBeauty Brands’ Executive Chairman and cofounder Tracy Holland, have helped her company “get to know the business.”

Coming out of the pandemic, there are consumers pinching pennies, especially with impending chatter about inflation. NielsenIQ reports that the low-income segment comprises the largest portion of beauty and personal care shoppers both in-store and online.

Add to that a cadre of influencers who push dollar brands via tutorials and social posts. Kelly Strack, who has 200K Instagram followers, brags about being a dollar store junkie and frequently does full-face YouTubes using value store purchases.

The flipside? There are brands who just don’t think the vibe fits their DNA. One company executive whose brands excel in mass merchandise doors who visited several value stores wasn’t impressed. “Maybe some are in better shape,” he said of his disappointment in the ambiance. The pricing structure was also a challenge. “We would have to be totally strip down and sell for 50% of our value price. Not for us,” he said.

Part of the challenge for the big dollar chains is the sheer number of stores they operate serving up obstacles to update them all. And the truth is there are some dollar stores—either by design or lack of housekeeping—that look unkempt. Out of stocks are an issue. Sometimes stores are not well lit. There is some deal-to-deal buying so some products are there one day, gone the next. Most of the retailers devote about 10% of store space to both beauty and personal care combined.

One beauty executive gave a prime example of how to size up the dollar store beauty landscape and whether a brand is a fit or not. Take The Ordinary with opening price points under $6, she said, it could be presented in a value-store environment. “Yet The Ordinary isn’t really a match with the value shopper,” the exec explained.

But if those in the industry have their way, things will change. Although not every dollar store is aggressive with beauty, several of the top ones are interested in boosting the margin-rich category. Emily Taylor, Chief Merchandising Officer of Dollar General, said at the opening of the first Popshelf that the chain puts a focus on beauty to offer customers a moment of pampering. “We have cosmetics, but it’s really more about hoping to make the format a treat-yourself destination.”

Five Below is also building momentum in beauty. The beauty department sports signage for brands including Wet n Wild, L.A. Colors, and Freeman. Appealing floor displays are loaded with deals from Banana Boat travel sizes and makeup sponges. Stores are spotless and brightly lit.

The industry continues to court away merchants with expertise in not only the mass market, but even specialty stores (Idalia Farrajota, SVP of merchandising for Five Below, for instance, has been at Michaels, Hudson's Bay, and Victoria’s Secret; Five Below’s Anderson was formerly at Walmart).

As illustrated by Dollar General’s Popshelf, Five Below, and some recent moves by Family Dollar, the value industry wants to get better and nab more of the beauty industry’s spending. It is a segment worth watching.

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