Deals, the dollar store chain that's a spin-off of Dollar Tree (DLTR), opened its first location with a pharmacy this year in West Park, Florida, The Sun Sentinel reports.
Given the store upgrades afoot at these modern day five-and-dimes, retail experts are now starting to ask: Will other dollar store chains follow suit?
The addition of pharmacy departments to dollar stores would mark the latest expression of the makeover unfolding at these deep discounters, which gained popularity during the recession, siphoning market share from mass merchants like Walmart (WMT) while winning over higher income consumers who might once have turned up their noses at the chains.
Dollar stores have spruced up their digs and added more food to their product mixes, as well as introducing more name-brand merchandise across a variety of product categories.
And they've enhanced their heath and beauty care departments, gunning for the drugstore chains, David Marcotte, senior vice president of market research for retail consultancy Kantar Retail, tells DailyFinance.
Cash-strapped shoppers would especially benefit from the addition of pharmacies to dollar stores, he says. "The dollar stores are overwhelmingly located in lower-income areas that may or may not be served by a drug store or supermarket pharmacy."
One industry watcher predicts pharmacies in dollar stores are almost an inevitability. "Dollar stores, like a fast-moving river, will fill all available territories," said Gene Hoffman, president and CEO of Corporate Strategies International, an investment banking firm, on RetailWire's online forum on the topic. "Thus pharmacies will likely become commonplace in many dollar stores."
But let's not get ahead of ourselves.
Dollar General (DG), the nation's biggest dollar chain,"has not announced any plans" to open pharmacies, Tawn Earnest, a company spokeswoman, tells DailyFinance.
And Family Dollar (FDO), the nation's second largest dollar chain behind Dollar General, has no current plans to roll out pharmacy departments either, says Josh Braverman, communications director for the retailer.
However, he added, "We know as boomers age and come to us for more of their over the counter health-and-beauty-aid needs, there are opportunities to continue to remain relevant to our customer."
No Frills, Low Prices
To gain entree to the drugstore business, Deals partnered with PharmaGo, an independent pharmacy, to run the prescription services inside the store.
PharmaGo offers prices competitive with Walgreens (WAG), CVS (CVS) and Walmart, and makes home deliveries, Bradley Schnur, chief operating office of PharmaGo, told The Sun Sentinel.
Shopper Michael Furey of Pembroke Pines replaced his pharmacy with PharmaGo soon after the Deals store opened close to where he lives. "I spend less money here than if I went to a big chain store," he told the paper.
But as a general proposition, will shoppers really be inclined to fill prescriptions at dollar chains, which, despite their makeovers, still largely operate no-frills stores that were once synonymous with low-quality merchandise and outdated goods from other retailers?
"There may be an image problem associated with dollar stores -- the lowest common denominator brand position may be out of sync with customer expectations," Richard Seesel, principal at In Focus LLC, said on RetailWire. "Target (TGT), Walmart and Costco (COST) don't have the same problem. Maybe Dollar Tree can make this work in its Deals format, but I'm a skeptic."
What's In a Brand?
Still, there's no denying that shopping habits have changed -- so perhaps dollar stores' low-rent image won't be an issue.
Americans have become more channel agnostic these days, and retailers are offering products and services far outside of what their store types or brands are known for. Drugstore chains like Walgreens and CVS are adding fine wine, sushi and nail salons to their stores; discounter Target sells out when it offers fresh looks from upscale designers like Missoni.
"It's about convenience, and what the store brand stands for isn't as key/essential as it once was," said David Slavick, vice president of retail consulting for Customer Communications Group, during the RetailWire forum.
Whether or not shoppers embrace the concept, dollar stores' low-cost structure would seem to preclude a wider roll-out of pharmacies to stores, retail experts say.
"The cost associated with running a pharmacy is grotesquely not in line with running a dollar store," Marcotte says. Adding a pharmacy could run a chain as much as $200,000 per store, he says.