An interesting trend over the past decade is the rise of dollar stores. At one time, they were a tiny, niche market selling mostly novelty products. From these humble origins, they have become an integral part of the modern retail environment.

This past decade has been tough for retail with the rise of online commerce and the hollowing out of the middle class. Stores like JC Penney (JCP  ) and Sears have been decimated. Companies focused on the lower-end and the higher-end of the market have survived and thrived in some cases.

In this environment, dollar stores have thrived. They have expanded into more offerings like groceries, apparel, and small electronic items. In many rural areas where the population has dropped, the dollar store is the closest and most convenient place to go grocery shopping.

Dollar Store Growth

The two largest dollar stores in the U.S. are Dollar General (DG  ) and Dollar Tree (DLTR  ). Through buying out smaller rivals and aggressive expansion, both companies have 30,000 locations in total. As of 2009, they had 20,000 locations between them which is astounding given the slow pace of growth in retail overall during that time period. Compare this to Wal-Mart (WMT  ) which has 4,700 stores in the country.

Dollar stores are winning business away from traditional grocery stores and big box stores as well as local retailers. And their strategy has been validated, as they seek to open another 20,000 stores between the two companies over the next decade.

There has been some political blowback to these companies' dominance. Critics argue that dollar stores tend to cluster near each other which creates disincentives for people to build grocery stores. Additionally, they find the options for healthier food lacking at dollar stores. In many communities with falling populations, dollar stores have thrived while the traditional grocery store went out of business.

Stock Price Performance

Consistent with its growing share of the retail market, Dollar General and Dollar Tree have seen huge gains in its stock. Over the past decade, Dollar Tree is up more than 600%, while Dollar General is up nearly 700%. Over this time period, Dollar Tree grew its revenues from just over $5 billion on a trailing 12-month basis to nearly $24 billion as of the last quarter. Dollar General's revenue grew from just under $9 billion to nearly $27 billion as well.

These stocks have outperformed on a longer-term basis and continue to outperform over shorter-term time frames as well. For example, the S&P 500 (SPY) is up around 3% since it peaked at 2,950 in October 2018. In comparison, Dollar Tree is up 43%, and Dollar General is 60% higher over the same time period.