One of the fastest-growing sectors in retail over the past decade has been the value channel. This includes dollar stores and dollar sections, such as Target’s Bullseye’s Playground, as well as other low-price retail formats, such as off-price chains like Burlington and TJ Maxx. Books in dollar stores typically represent a small percentage of each chain’s sales, and the category tends to be remainder driven. But there are opportunities for sales of new books, especially for children, if publishers can make the economics work.
“It’s a very important channel for consumers to access incredible value, and that’s important,” said George Papp, CEO at Papp International, whose business was founded to sell books to dollar stores in the U.S., Canada, and Latin America. “It’s a service to the communities these stores are based in. But it’s a tricky market.”
The top player among dollar retailers, Dollar General, has boasted same-store sales increases for 31 straight years and, with sales of more than $33 billion in 2020, ranks among the top 20 U.S. retailers, according to the National Retail Federation. In the pandemic-impacted year of 2020, its sales were up more than 20% over 2019. Not far behind are Dollar Tree and its Family Dollar division, which together brought in sales of more than $25 billion in 2020. Collectively, dollar stores saw sales rise 12% year-over-year in 2020, versus a 7% gain in 2019, according to Bloomberg Second Measure.
Meanwhile, as many retail stores have closed in recent years, dollar chains have taken the opposite path, even during the pandemic. Dollar General maintains 17,000 stores in 46 states (compared to 3,570 Walmart Supercenters in the U.S.) and is expected to add more than 1,000 stores in 2021. Dollar Tree and Family Dollar, which have 15,000 locations across the two chains, plan 591 new outlets this year.
“Dollar stores are looking for high-quality books at insane value, especially in the U.S.,” Papp explained. That results in very low margins for publishers.
Beth Peters, cofounder of Dreamtivity—which was purchased by Readerlink Distribution Services in May, in part because of its strength in the value channel—pointed out that high volumes help compensate for those thin margins. A title might sell 10,000–30,000 units into a mass retailer, she said, but 100,000–150,000 units into a dollar store.
“The best thing about the value channel is it helps us get the proper balance between returnable vs. nonreturnable,” Peters noted. Unlike most other retailers of books, dollar and similar stores purchase almost everything on a nonreturnable basis. “It guarantees a really good mix. If you can get to 70/30 or 60/40 returnable versus nonreturnable, that’s good for the health of the overall business.”
Wayne Bell, publisher and founder of Really Big Coloring Book Co., does business in the value channel primarily for competitive reasons. “If we were not there, there’s someone else who would be there,” he noted. He said he has to sell 14–18 books in a dollar store to earn a net profit equal to the average he normally gets from the sale of one book at most other retailers. “We own two high-end, high-speed printers, and we can be competitive as long as we get the paper at a reasonable price. But it’s a very tough market.”
Ben Ferguson, CEO of Bendon Publishing, which was built with the value channel in mind and is the dominant publishing player, said, “We constantly tweak our infrastructure, overhead, and costs to make sure we’re competitive.”
The fact that books command a tiny share of dollar retailers’ total sales can also be a challenge. “Books are pretty much the lowest on the list of what they’re buying,” Papp said. “There’s a lot of turnover in book buyers and not a lot of continuity. We have the most success when the buyer is involved and gives us feedback so we can change the product based on their suggestions.”
What sells in the book aisle?
Coloring and activity books dominate the kids’ assortment, but picture and story books, board books, and leveled readers can be found, especially in chains with higher value-channel price points of $5 or so. (Bibles, puzzle books, and cookbooks, as well as remaindered novels, are some of the key formats on the adult side.) And when selling into these stores, “the seasonal business is really important,” Papp noted. In that regard, dollar store buyers are looking for good value for the price, which typically takes the form of books with large trim sizes and/or a large number of pages, as well as bells and whistles like glitter or foil on the covers.
Licensing also sells. “It’s a good marriage of bringing the perceived value to the customer and making the best quality product you can within the overall margins,” Peters said. “It’s about big value and low price,” Ferguson agreed. “The retailers are looking for as much margin as they can possibly get.”
Peachtree Playthings recently signed a license with Disney to publish comic books and magazines to be sold through the value channel, where it also offers licensed products including stationery, night lights, coin banks, and the like.
Licensors have been increasing their focus on the value channel across all consumer products categories. “We have to reach parents and kids wherever they are,” said Gabriela Arenas, v-p, global licensing at Sesame Workshop. “When you have 15,000 doors or 16,000 doors, often in places where there are no big-footprint stores for the neighborhood to access, we have to be there.”
“The economics challenge us, but with that challenge comes innovation,” said Lourdes Arocho, senior v-p, Paramount Pictures Licensing, Global Games, and Publishing at ViacomCBS Consumer Products, which handles licensing for Nickelodeon and other corporate divisions. “There are definitely opportunities to cross-promote product in this space. We have built some exciting cross-category programs this fall for the Paw Patrol movie.”
Several chains are opening new, slightly higher-priced concepts that will give publishers some breathing room on margins, especially as costs for transportation and materials rise. “It opens up a whole new world,” said Peters of Dreamtivity, which offers a range of formats at $1, $3, and $5.
Dollar General opened its $5-and-below Popshelf department in 2020 and has plans to expand to 50 locations by the end of 2021. Similarly, the 1,000-store chain Five Below, which already focuses on goods priced at $5 or less, hopes to expand its higher-priced Five Beyond section to 280 stores by year-end 2021. Dollar Tree expects to open combined Dollar Tree/Family Dollar locations in rural areas; these would carry both Family Dollar’s range of household goods at various price points and Dollar Tree’s $1-or-less product array.
“You can give more value at $3.99 or $5.99 than at $1.99,” said Ferguson, who estimated that about 80% of Bendon’s overall business to mass and value retailers involves products priced at $3.99 or higher.
No matter the price point, publishers need to commit to dollar stores and other value retailers to succeed in this market. “You have to develop programs for these low-price-point, high-volume stores,” said Mark Tasman, president of Peachtree Playthings. “You can’t sell one item. It’s about how important you can be to them and how important they can be to you.”