Retail Investment - Dollar Stores

[Raymond Hooks]

All,

I'm considering a commercial retail real estate investment. As you're aware, many sectors of retail is struggling (i.e. Macy's, Dillards, JcPenny's Sears, Neiman Marcus, etc.). However, I feel that Dollar Stores are high-quality & publicly traded tenants, providing basic goods, even during the Covid-19 pandemic. The Dollar Stores are used by the lower and middle class for convenience items. Most of the stores were declared essential and stayed open during the pandemic. 

Below are some targeted highlights:

7%+ cash on cash return

15%+ IRR

5-15 year leases

I will be reading the earnings/annual reports for the publicly traded companies. I just want to get your feedback on the stability and long-term outlook on this sector of retail. Obviously, I have to perform due diligence on the Sponsor and legal documents. 

[Brett Peters]

@Raymond Hooks This is a great question. I specialize in the commercial/retail sector. Dollar stores have very strong financials and are a provider of consumer staples. A well placed dollar store is literally one of the safest retail investments period and notoriously more resistant against economic decline. The discussion over the 'death' of retail is a lengthy one. E-commerce currently makes up about 17% of retail purchases. To add, there is a positive correlation between a customer visiting a brick and mortar and being significantly more likely to make an online purchase. Furthermore, most of the demise these big named retailers have been facing has more to do with poor financial and over-leveraging than it has to do with retail as a whole. However, the logistics of this are just as important as the underlying financial. If you are working with a broker, request a gap analysis, traffic count, tapestry etc. If is not single tenant net, then you will want to analyze the sounding businesses and the overall health of the shopping center itself.