Has the time come for bulk vending operators to take another look at so-called "down-market" locations? According to retail analysts, dollar stores and other discounters are expanding at a record rate, outpacing and outselling such long-established chains as J.C. Penney and Sears. And this may be good news for bulk operators. While many of the dollar stores and other extreme-discounter retail locations are part of large corporate chains, there are independent and mom-and-pop stores in the discount category that also are experiencing growth.
The discount retail channel is very popular. For example, Dollar General has approximately 11,000 stores and is continuing to expand. This type of growth among the super-discounters offers a stark and dramatic comparison to chains like Staples Inc. and RadioShack Corp., both of which announced plans to close hundreds of outlets.
The reasons behind the dramatic expansion and recent successes of these rock-bottom retailers are complex. Some experts point to the fact that online shopping has hit many of the midrange brick-and-mortar chains hard. This is particularly true of younger consumers who may browse the mall, but buy online for additional savings. It is increasingly common to see younger consumers actually making purchases on smartphones from inside retail stores.
Another reason: the continued sluggish economy that has driven consumers to find the best possible prices. Even Walmart has taken notice, evidenced by the mega-retailer's announcement of plans to open 270 to 300 small stores during its current fiscal year, doubling the initial count of 120 to 150 mini Walmarts.
Whatever the reason, independent dollar discount stores, check-cashing establishments, thrift stores and payday loan outlets may represent an underserved market segment for bulk vending. That is not to say there are not distinct challenges to operating in down-market locations.
"There are often problems with the 'real estate' in these types of locations," said Steve Shechner of Capital Vending & Distribution (Florence, AL), past-president of the National Bulk Vendors Association. "They are constantly rearranging the dollar stores to accommodate new inventory. So, you can put a machine in and a few months later, they'll move it. Available and stable space for vending equipment is really at a premium in those types of stores."
Square-footage efficiency also means that operators are often limited in the size of equipment they can place. The large bulk vending machine racks that do well and stay put in traditional vestibules may be inappropriate for discount store layouts. Operators may find themselves limited to outside rack configurations.
NIFTY AND THRIFTY
Thrift stores represent another key element to down-market locations. Many thrift stores are launched to assist a charity's fundraising efforts, and operators have reported that local charities often will allow their logos to be used on machines. They typically don't pose the same problems with available real estate as dollar discount locations. "We do well in thrift stores," Schechner reported. "But so far, we are only vending bulk candy in these locations. That may change."
Payday loan outlets, although currently under fire by local and state Legislatures, have become an increasingly popular form of banking. Recent data suggest that the millennial generation has taken a shine to these types of short-term loans -- not only do they find them convenient, but also enjoy avoiding overdraft fees that can run much higher than the interest charged by payday storefront operations.
Taken as a group, payday loan locations provide another key component for successful bulk vending: their customers are likely to be in possession of actual currency. While purchases in more upscale locations are more often than not made with plastic -- either debit or credit cards -- down-market locations represent some of the last bastions of "cash on the barrelhead" shopping. And some shopping centers and malls are seeing them as a new type of anchor store to attract consumers as they take on larger and larger spaces.
It remains to be seen whether these types of stores will continue to thrive as the economy slowly improves. But at the moment, they are having their day in the sun.