papers

Dollar stores are small-box discount stores that offer a broad range of products at low prices with a limited selection within each product category. Major dollar store chains in the U.S. have experienced exponential growth in the past two decades, outgrowing Walmart and McDonald’s in terms of store locations. In this paper, I discuss three potential channels through which dollar stores can affect consumer welfare: (1) dollar stores charge lower prices for the same products than their competitors and offer a higher share of private-brand products, which generate disproportionate sales; (2) dollar store entry leads to exits of grocery stores and changes the local market structure; and (3) low-income households are more exposed to dollar store entry than high-income households. I propose a nested-CES demand model to quantify the welfare impact of dollar store entry through these channels for households of different income groups. I find that between 2006 and 2019, on average, dollar store entry improved household welfare, albeit with large heterogeneity within and across household income groups. The variation in the welfare impact of dollar store entry across households is driven by differences in households’ preferences (across income groups), their baseline retail conditions, and the number of dollar store entries. A decomposition of household welfare change due to dollar store entry reveals the different channels sustaining the welfare gains of low- vs. high-income households. Low-income households benefit from both the change in retail variety and product characteristics at dollar stores, whereas the welfare gain enjoyed by high-income households comes entirely from their value for product characteristics at dollar stores. Furthermore, this paper highlights the declining appeal of dollar stores as they continue to enter local markets and corroborates the need for existing placed-based dispersal policies for dollar stores.

Countering the prevailing narrative of a ”retail apocalypse", we demonstrate expansion of the general merchandise sector from 2010 to 2019 period, driven by the growth of dollar and discount department stores. Using geolocation data from over four million smartphones, we estimate preferences for specific, identified chains across income groups and geographies. We introduce a novel instrument to address endogeneity of the distance between consumers and retail establishments. We estimate that welfare per trip to general merchandise stores has not substantially declined over time. While consumers have been made worse off from the decline in smaller regional chains, they have benefited from entry of national chains locating closer to their residences.