Will an online dollar store work?

Discussion
Source: iTunes app store
Jun 15, 2016
George Anderson

Some business ideas come along that seem as though they are either just plain crazy or crazy brilliant. Today, we submit for your evaluation hollar.com, a new site that approximates the experience of dollar stores online with goods offered at prices between $2 and $5.

Hollar is the creation of one current (CEO Brian Lee) and one former exec from The Honest Company (David Yeom) who questioned why dollar stores — one of the fastest growing channels in retail — had not migrated with success online.

Of course, had they asked many retail veterans, they would have been given plenty of reasons why hollar would never work. To start, there are the low margins and penny profits associated with the sale of typical dollar store goods. Dollar chains also count on frequent store visits from customers purchasing cheap consumables. Would this pattern repeat itself online? Dollar General has an e-commerce option, but the chain’s website is never talked about as a growth vehicle. Family Dollar uses its site to promote the sale of goods in its stores.

According to reports, hollar recently had its first month with more than $1 million in sales. The company claims to have reached a point where each order it ships is profitable. In total, it carries some 20,000 SKUs across 18 product categories and is in the process of developing private labels sourced from China to further boost margins.

DISCUSSION QUESTIONS: Do dollar stores, specifically hollar.com, have a viable future selling goods online? Will the development of private label increase hollar’s chances for success?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The economic hurdles that dollar retailers have online are clearly a huge obstacle."

Join the Discussion!

20 Comments on "Will an online dollar store work?"


Sort by:   newest | oldest | most voted
David Livingston
Guest
2 years 7 months ago

Usually the first sign it’s not working is when a company claims to have reached a point that some part of their business is profitable. I was in Walmart yesterday specifically to look at “dollar store” comparable products. Walmart was selling them for 75 cents. Well, that answered my question about if Walmart should operate dollar stores. Case closed. If there are real opportunities in an online dollar store, Dollar General, Dollar Tree and Family Dollar would be all over this.

Ken Cassar
BrainTrust
Ken Cassar
Vice President, Principal Analyst, Rakuten Intelligence
2 years 7 months ago

In the event that you missed the correction at the bottom of the BuzzFeed article, be sure that you go back and re-read the article. The company is not profitable, it is only gross margin profitable — the lowest of profitability hurdles. The economic hurdles that dollar retailers have online are clearly a huge obstacle. The bigger problem, I believe, is demographic. While everyone hits the offline dollar store occasionally (when Junior has a dollar burning a hole in his pocket, for example), sales in that channel are heavily driven by buyers of modest economic means, many of whom pay in cash because they don’t have credit or debit cards. If the economics of dollar stores could ever work online, it would require massive scale, and I don’t believe that the online population is yet representative enough of the dollar shopper to drive that scale.

Tony Orlando
BrainTrust

I don’t see this as a huge success or even surviving, as shipping costs will eat any profits they might make. I admire the effort, but Amazon is watching, along with others, and could easily add this to their lineup and make it tougher for hollar to take off. We’ll see what happens.

Gene Detroyer
BrainTrust

Tony, When we look at online, why do we focus on shipping cost and ignore the costs of running a brick-and-mortar store? No property, no walls, no roof, no heating, no air conditioning, no fixtures, no labor, no rent. I think I could ship a whole lot of goods for the cost of operating 300, 1,000 or 5,000 stores.

Tom Brown
Guest
2 years 7 months ago

They wouldn’t be able to ship anything without at least a warehouse.

Karen McNeely
Guest

True they need a warehouse, but in general those costs are far less expensive than even low end retail outlets.

Mark Jackson
Guest
2 years 5 months ago

Yes, but it is cheaper to run a warehouse than a regular store.

Keith Anderson
BrainTrust

Comparisons to Five Below are more apt than to Dollar Tree or Dollar General. This is a relatively green field online, and the treasure hunt and product discovery elements are well-executed.

There are lots of questions about the economic model, and I’m not here to say whether this will or will not work. But I will say that this is a strong executive team targeting a large and growing market with a well-executed and distinct approach to merchandising.

Ben Ball
BrainTrust

I’m beginning to think anything is possible in e-commerce. But a $5 barbecue grill shipped to my house? (I just went to hollar.com to see what this is before commenting and that’s what I found on the “featured items” page.)

This looks like the online version of the very early dollar store model — lots of very cheap, high margin GM with just enough FMCG staples at great value (and most likely break-even or worse margins) to keep customers coming in the door (or to the site).

That model did make higher margins, so maybe they can make the shipping work. But it also had to morph into a mini-grocery store to grow.

I’d give this a 25 percent chance of survival due to low overhead costs. But no chance of becoming a billion dollar retailer. We’ll see.

Gene Detroyer
BrainTrust

Let’s see … “Of course, had they asked many retail veterans, they would have been given plenty of reasons why hollar would never work. To start, there are the low margins and penny profits associated with the sale of typical dollar store goods.” But given the same margins, online is a better business model.

“Dollar chains also count on frequent store visits from customers purchasing cheap consumables. Would this pattern repeat itself online?” Of course it would, in fact the online visits would be even more frequent.

“Dollar General has an e-commerce option, but the chain’s website is never talked about as a growth vehicle. Family Dollar uses its site to promote the sale of goods in its stores.” Online is where all retail growth will be. If the brick-and-mortar dollar retailers ignore it, they will suffer.

Ed Rosenbaum
BrainTrust

Seriously? OK, count me in the “no” column. How can a company operating on such a low profit margin be successful in this venue with shipping costs the way they are? How can they succeed when the big boys like Walmart and Amazon are watching? I would think the success of the dollar store industry is based on me going in to buy a birthday card and walking out having spent twenty dollars. Doubtful that it will happen online.

Shep Hyken
BrainTrust

Hollar.com claims that each order it is shipping is profitable. I’d like a definition of profitable. The margins are already thin. The premise is a business based on huge volume. There are so many expenses to consider. The current brick-and-mortar dollar stores know what it takes to be profitable. I’m sure they have considered the online business. Maybe holler.com has the formula for success (I hope they do.). And if private labeling helps contribute to the margin, even better.

Lee Peterson
BrainTrust

I liked this idea the first time when it was called … Amazon. But given the American obsession with price, it’ll probably work for a while anyway. Having said that, I do not think this idea will ever come close to putting sweat on Jeff Bezos’ brow. And when the novelty wears off and you wind up back on Amazon for what you need, well, I’m just saying.

Karen McNeely
Guest

Clearly I’m in the minority, but I think Hollar has a good shot of succeeding. The website is bright and fun with big pictures that make you want to shop. Aside from a promotion with your first order, shipping isn’t free until you hit the $25 mark, which sounds like a reasonable point to keep it profitable, and if the shopper hasn’t hit that mark they likely keep shopping to get there, possibly going even higher.

If they develop high margin impulse items, keeping the items within size and weight limits to keep shipping affordable I think they can be quite profitable.

It also appears that some of the items are limited quantity which keeps the turn high and gives the customer a sense of urgency. Keep them coming back by enticing them with new fun items or great deals.

I wouldn’t bet all of my money on them, but I wouldn’t bet against them either.

John Karolefski
BrainTrust

Profitability is always an issue with these kinds of ventures. With that in mind, it’s really exciting to see them in the process of developing private labels sourced from China to further boost margins. That is something to brag about to customers, don’t you think?

Craig Sundstrom
Guest

“Do dollar stores, specifically hollar.com, have a viable future selling goods online?” No.

Gajendra Ratnavel
Guest

Online stores like Monoprice and Deal Extreme are two stores that have a huge selection of items for less than $5. Monoprice’s claim to fame was cheap, good quality cables. It works, they just need to get a hell of a deal with a shipping company.

Ken Morris
BrainTrust

While hollar.com has some serious obstacles to financial viability (covering shipping costs), there are some things working for them. First, since they are a pioneer in the dollar + discount category for online retailers, they currently don’t have a lot of competition and they have the first mover advantage. The other advantage is that they don’t have the added costs of physical stores. While all retailers have the cost of warehouses, an online-only retailer, with no stores, has significantly reduced overall facilities costs.

On the other hand Family Dollar/Dollar Tree and Dollar General have over 6,000 distribution locations each (stores) and I have to believe they have thought this through and don’t believe this to be a viable strategy.

The key for hollar.com will be smart pricing, the right level of minimum purchases or membership fee to warrant free shipping, and solving the distribution challenge. If they can crack that assortment of nuts, it has the possibility to be profitable, but the jury is still out. If they are successful, look for other retailers to follow.

Matt Talbot
Guest

The biggest thing an online dollar store like hollar.com has going for it is not having a traditional storefront. That means not having to pay rent for a brick-and-mortar shop, store associates or any of the other facility expenses related to operating a storefront.

However, I feel like the forces working against an online dollar store probably outweigh the no storefront advantage. One of those hurdles includes low margins that could easily be eaten up by shipping costs. Probably the biggest obstacle is losing out on impulse purchases that brick-and-mortar dollar stores capitalize on. Of course, hollar.com can serve up related products once a shopper puts something in their cart but that will never replicate a shopper walking down an aisle in a storefront and adding more items to their cart.

Mark Jackson
Guest
2 years 5 months ago
The answer is yes! First, Hollar is not the first or only online dollar store so it has been proven. Dollar Fanatic, aka DollarFanatic.com, is the first exclusively online dollar store and Hollar maybe the second or third but the concept works. Dollar Fanatic started out as the only exclusively online one dollar store but now it looks like about 25% of their products are over $1.00 each. If we are honest, Hollar has some pretty good deals that when you take shipping into account are some pretty great deals. Even Walmart charges shipping direct to your door so online dollar stores like Hollar and Dollar Fanatic are really good bargains. Lastly we can’t expect everyone to beat Walmart’s price on everything, so let’s be real. The comparison should really be comparing Hollar and Dollar Fanatic to Amazon, and in my experience they blow Amazon out the water because especially Dollar Fanatic deals in lower priced products that Amazon doesn’t really want to deal with. Lastly I think Hollar is going to make a huge… Read more »
wpDiscuz
Braintrust
"The economic hurdles that dollar retailers have online are clearly a huge obstacle."

Take Our Instant Poll

How likely is hollar.com to succeed?

View Results

Loading ... Loading ...