Much of it has to do with the nature of the business.

"Dollar stores have very, very slim margins," said Ellen Davis, vice president of the Washington-based National Retail Federation. "You're literally making only a couple of cents on each sale."

Dollar store and value retailers can offer low prices because they buy in bulk, move inventory near its expiration date, sell items in smaller packages and take advantage of closeout sales on merchandise.

"I think the dollar store business is very ill-suited for mom and pops," said Rob Black, vice president of retail leasing at CB Richard Ellis in Richmond.

Black said the franchise and independent dollar stores left the Richmond area market six to eight years ago, but the chain stores remain.

It's a national trend.

The 10 largest discount, closeout and fixed-price stores by revenue controlled 70 percent of value-store sales in 2006, up from 51 percent five years earlier, according to a 2007 report by TNS Retail Forward, a national retail research group based in Columbus, Ohio.

Dollar Tree -- based in Chesapeake -- Dollar General, Family Dollar and other extreme discount stores are among the survivors. Multiple calls to the chains seeking comment were not returned.

One way Dollar Tree, where the motto is "Everything's $1.00," has increased sales is by nearly doubling the stores that take food stamps to 1,570.

When inflation hits, fixed-cost chains such as Dollar Tree can't raise prices. They look for efficiencies and other ways to keep their profit up. Sometimes, that means switching vendors or swapping low-profit stock for items with a better margin.

Of the 10 largest value stores, only two offer merchandise for a fixed price.

More customer demand for perishable food items -- which have lower profit margins than holiday stock or household cleaners -- could impact profitability and cause dollar stores to struggle, the retail report said.

Last month, rising costs and inflation caused Western states retailer 99 cents Only Stores to announce the first price increase in 26 years -- to 99.99 cents, up a penny.

Dollar Tree, which has 3,517 stores in 48 states, may abandon the fixed-price concept.

The chain was offering items for other than a dollar at 25 stores and had plans to increase that to 50 stores in 2007, according to TNS Retail Forward.

In March 2006, the company also purchased 138 Deal$ stores, which sell items at multiple price points, typically $5 or less. The stores let the company enter into more costly urban markets, where rent and wages may be higher, President and Chief Executive Bob Sasser said during an analysts meeting Tuesday.

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Customer demographics

TNS Retail Forward, a national retail research group based in Columbus, Ohio, released a 2007 study about consumers who shop at fixed-price stores such as Dollar Tree and 99 cents Only Stores:

Income: The largest percentage of customers, 32 percent, have an annual income of less than $25,000. Percentages decline as income rises.

Children in household: 70 percent of shoppers do not have children living in the household

Life state: The biggest percentage of shoppers are parents 45 or older with a child living at home, who account for 18 percent of customers, followed by singles ages 35-65, at 15 percent.

Shoppers by age: 18 to 24: 4 percent; 25 to 34: 15 percent; 35 to 44: 19 percent; 45 to 54: 23 percent; 55 to 64: 17 percent; and 65 and older: 21 percent

Contact Emily C. Dooley at (804) 649-6016 or edooley@timesdispatch.com.

ILLUSTRATION: PHOTO

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Originally published by C. DOOLEY; Times-Dispatch Staff Writer.

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