By Randy Tucker
The Cincinnati Enquirer

Shoppers inspect the wares at the newly-opened Dollar Tree store in the Latonia Centre in Covington, which opened last week. Photo by MICHAEL E. KEATING/The Cincinnati Enquirer

Dollar stores, once the shopping domain of the poor, are seeing a surge in demand from consumers of all income levels as a tough economy prompts more people to become bargain shoppers.

The demand has led to aggressive expansion among dollar-store retailers across the country, including in Greater Cincinnati, where industry leader Dollar Tree Stores Inc. opened a new outlet in Covington last week.

The new store on Winston Avenue in the Latonia Centre carries basic items such as paper goods and cleaning supplies - all for $1.

It also sells a wide assortment of items generally found at larger stores, including toys, health and personal hygiene products, cosmetics, books, accessories and household goods.

"I'm pretty much hooked on dollar stores, especially Dollar Tree, because they really do sell everything for a dollar," said Rachel Sollofe, 37, of Newport, who was shopping at the new store this week. "I buy soap, makeup, toys for the kids; and I'm sure I pay half as much as I would if I bought the same stuff at Target or Kmart."

As Sollofe implied, the popularity of dollar stores has not only changed the way America shops. It also has changed the competitive landscape and put pressure on mainstream retailers to respond.

Big-box discounters such as Target and Wal-Mart have recently begun testing the dollar-store concept inside their stores.

And even Cincinnati-based supermarket giant Kroger Co. has jumped on the dollar bandwagon.

"We recognize that dollar stores are growing in popularity and are very appealing to budget-conscious shoppers," said Gary Rhodes, a spokesman for Kroger, which is testing $1 departments in two stores in Houston. Kroger also is testing $1 aisles in a small number of stores in other divisions, including King Soopers in Colorado, Rhodes said.

Minneapolis-based Target Corp. launched a test of $1 items in some markets, including Greater Cincinnati, in January. The response from Queen City consumers has been strong, said Brie Heath, a Target spokeswoman.

"This (dollar test) has been a great way for us to reach out to our customers in that regard and reinvent what we offer them," Heath said.

Target sells toys, baby clothes and even home decor in its dollar sections, called "The One Spot."

The test has been such a success that Target plans to roll out the dollar sections in all its stores by the end of this year, Heath said.

Target and other retailers are positioning themselves to capitalize on one of the highest growth sectors in retailing.

According to market tracker ACNielsen, about 62 percent of all U.S. households shop dollar stores, compared with 47 percent in 1998. And well over one-third of all Americans visit a dollar store each month.

Over the past two years, sales at dollar stores and other small-format value retailers have grown at an astonishing 10.9 percent annually, according to a survey from Columbus-based research and consulting firm Retail Forward.

By comparison, mainstream retailers across most other categories have struggled to eke out single-digit gains.

"Small-format value retailers have seemingly come out of nowhere to grab the title of high-growth retail sector and Wall Street darling," said Sandy Skrovan, author of the recently released report "Dollar Stores and Other Small Format Value Retailers" and vice president of Retail Forward.

"Growth is being driven primarily by aggressive new store expansion as leading players like Dollar General and Family Dollar are opening stores at a pace of more than one a day."

The sector's growth has attracted the attention of major manufacturers of household goods, including Cincinnati's Procter & Gamble, which has begun to supply dollar stores with compact packages of their brand-name products.

Dollar Tree, for example, carries such P&G brands as Tide, Folgers and Bounty.

"In the last four years, Dollar Tree has grown to more than 2,500 stores nationwide, allowing us to leverage our size to increase buying power," said Barbara Seman, vice president of marketing for Dollar Tree. "This makes us more attractive to large domestic suppliers and ultimately provides our customers with a greater variety of merchandise and a better value."

E-mail rtucker@enquirer.com