While traditional department stores, mall-based retailers and subscription commerce businesses have had their struggles as of late, there’s one retail category that's booming (at least relatively speaking): dollar stores and off-price brands (e.g., Ross, Marshalls, T.J. Maxx). However, that category's success hasn't translated online, as the business model of paying to ship inexpensive goods across the country isn’t a profitable one. Or so we thought.
Hollar, which bills itself as the online destination for the coolest gifts and goods starting at just $2, is trying to change the model. In a keynote presentation yesterday at the eTail West conference in Palm Springs, Calif., David Yeom, co-founder and CEO of Hollar, provided insights into his company as well as the larger trend of dollar stores gaining retail market share.
For some background, Hollar was launched in November 2015, employees 200 people and offers tens of thousands of products that cut across most every product category. Most items sold on Hollar are priced between $5-$10, on average. There is a $10 minimum order to check out.
And for some perspective on the larger category, dollar stores are a $100 billion industry; 80 million consumers in the U.S. shop at dollar stores, of which one in four shop at least once a week; and, perhaps surprisingly, the category’s fastest-growing segment is customers with $100,000-plus in household income.
“[Dollar stores] continue to outperform their peer set,” noted Yeom. “It's incredible to consider what's happening with this segment when you look at the rest of the retail landscape.”
Yeom specifically cited the struggles of traditional department stores such as Macy's, J.C. Penney, Nordstrom and Sears. In fact, Yeom shared a slide that showed the market value of the 10 largest retailers back in 2007 — many of the companies listed above were in that top 10 — and then what their market value is today. Of the 10, only one (Amazon.com) saw its market share increase compared to 10 years ago. Dollar stores are bucking the trend for traditional brick-and-mortar retailers by gaining market share, which led Yeom to believe that the model could work online as well.
Focus on Conversion Rate
A 3 percent conversion rate is average for online retailers today. Market leader Amazon boasts a healthy conversion rate of 13 percent. However, dollar stores blow past that number: Consumers that enter a dollar store convert (i.e., make a purchase), on average, 80 percent of the time. Only grocery stores can match such a conversion rate.
Yeom did make the concession that measuring conversion rate in-store vs. online is somewhat of an unfair comparison, but his message was clear: dollar store shoppers convert at a much high rate than shoppers in other retail verticals.
There are three keys to the high conversion rates enjoyed by dollar stores, according to Yeom:
- Value proposition: consumers know that they’re going to get a great deal.
- Merchandising: dollar stores off consumers a wide array of merchandise to choose from.
- Sense of urgency: dollar stores typically turn over their merchandise quickly, leading to the feeling amongst its customers that if they don’t buy the item, there’s a good chance it won’t be there when they come back again.
What Not to Do
Dollar stores, including Hollar, play by a different set of rules than most retailers, said Yeom. As such, there are some tactics that are popular with most retailers that don’t work as well for Hollar. These include the following:
- Wish lists and back-in-stock messages: We want our customers to purchase when products are available, because they might not be around much longer, Yeom said.
- Strategic discounting: Hollar wants its customers to always feel they're getting the best deal from the get go, rather than having to wait for a special discount or sale.
- Emphasize site search: 85 percent of purchases on Hollar are made without using the search function, noted Yeom. People don't go in with a laundry list of items that they want to buy; it’s more about discovery.
Playing a Different Game
Dollar stores are competing for consumers’ wallets based upon two primary factors — value and merchandise assortment. For Hollar, it comes down to value, freshness of merchandise and the customer experience. All three are critical as it competes with Amazon … or is it?
“How do you compete against someone that is bigger, faster, stronger [Amazon]?” Yeom asked the audience. “You play a different game. Just because some customers have a smaller wallet, doesn't make them less valuable customers.”
Yeom noted that 80 percent of Hollar’s customers are outside the e-commerce hotbeds of California and New York, with most residing in rural, Southern states.
“We designed our site for middle America — the other 99 percent,” Yeom said.
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