Dollar General invests in major expansion

Discussion
Mar 25, 2016

Dollar General may have lost out to Dollar Tree in its bid to acquire Family Dollar, but that’s the only place the company’s management plans to lose to its rivals. The largest dollar store chain in the U.S. has announced plans to add roughly 1,900 new stores over the course of the current and next fiscal years, bringing its store count to more than 14,000.

“Dollar General has a powerful strategic plan that enables us to drive both the top line and bottom line to deliver strong financial returns as outlined in our growth model over the long-term,” said Todd Vasos, Dollar General’s CEO, in a statement. “With strong cash flow and an efficient capital structure, we believe that we have a compelling opportunity to invest for growth while also returning cash to shareholders through consistent share repurchases and anticipated quarterly dividends.”

The chain plans to add 900 new stores during the current fiscal year while remodeling or relocating 875 others. Next year, Dollar General will open 1,000 new stores while remodeling or relocating 900. The chain, which posted a same-store sales gain of 2.2 percent in the fourth quarter, projects net sales to increase between seven and 10 percent this year while earnings per share is expected to improve between 10 and 15 percent.

Dollar General recently went public with its test of a new urban concept store. The locations, which measure around 6,000-square-feet, occupy about 20 percent less space than the typical Dollar General. So far the chain has opened about 30 of the new stores with plans to add another 80 during fiscal 2016.

Speaking earlier this month on a conference call with analysts, Mr. Vasos said, said the test stores were producing higher sales per square foot than the chain’s standard format stores, which was essential because they were more costly to operate based on their location in densely populated markets.

“By eliminating less productive product segments and adding or expanding product departments to meet the needs of our urban customers, we believe this smaller format store will allow us to have higher capture rate per site selection,” he said.

Photo: Dollar General

DISCUSSION QUESTIONS: How long do you think Dollar General and its rivals will be able to keep up the pace of new store openings? How do you see Dollar General and other dollar stores evolving in the years ahead?

Braintrust
"Improved and extended economy private label lines from traditional food retailers who recognize the threat, as well as increased promotional activity from these retailers, will make life harder for these extreme value retailers."
"It is difficult for me to believe that the projected store growth numbers for Dollar General in their current formats are sustainable."

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8 Comments on "Dollar General invests in major expansion"

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Kai Clarke
BrainTrust

There are only a few years left (if that) for this level of growth to continue without an acquisition, or change in focus, for these stores. There are too many areas which require more help in retail.

Richard J. George, Ph.D.
BrainTrust

As noted the number of new store openings and remodels continues to grow with little abatement in speed or numbers. However, in the longer term these players will begin to see limits for growth. Improved and extended economy private label lines from traditional food retailers who recognize the threat, as well as increased promotional activity from these retailers, will make life harder for these extreme value retailers. Also, the expansion of Aldi and the coming of Lidl will put more price pressure on dollar stores.

Going forward, a potential niche opportunity for dollar stores is in the convenience store market. Currently, many perceive dollar stores as convenience stores without convenience store pricing. Plus, as many c-stores move further into foodservice versus groceries, this opens an opportunity for dollar stores to fulfill one of the primary needs that gave life to convenience stores, namely, fill-in or emergency food and household purchases.

Mark Heckman
BrainTrust

It is difficult for me to believe that the projected store growth numbers for Dollar General in their current formats are sustainable. I base my opinion on the general trends of brick-and-mortar retail overall and the maturity cycle of the dollar channel.

If they are to profitably sustain aggressive growth, Dollar General must continue to add new categories of product and expand their shopper base. I would also suggest they think about re-organizing their store for enhanced shop-ability, as many of their stores are simply so packed with product that it hinders the shopping experience.

Perhaps combining the best attributes of a convenience store with dollar store offerings could be one way forward as combining shopping trips for the consumer typically has an upside.

Zel Bianco
BrainTrust

It’s hard to say if other companies can keep up with the pace of store openings. I think whoever invests the most time and money in selecting data-driven product assortments and researching under-served areas will ultimately win.

Gene Detroyer
BrainTrust

Did management think, “Gee, if we build more stores, we will get more customers.” or “Gee, there are so many customers out there, we better build more stores.”?

In either case, management is not spending a lot of time looking at the marketplace. The maturity of retail does not support either conclusion.

Tom Redd
Guest

Dollars will keep the pace as long as the margins support it. Expect that they will close and open on a consistent basis as long as the right locations are available. They are very good at finding just the right place to drop a store, and set-up to opening is fast.

GO DOLLAR GO!

Craig Sundstrom
Guest

How long? Until Aug 12, 2021. No, seriously, I’m not sure that question can even be answered, since it depends on how the economy does — or “doesn’t” — how competitors respond, the price of gas. In short a long series of variables not knowable. Suffice it to say they represent such a small share of all retail sales they could keep growing for decades.

karen Robbins
Guest
karen Robbins
1 year 7 months ago

I think that as long as they keep building new stores that have a lot of space where you can get through them, a lot of people will visit them and shop. I know when we got a new one everyone in my neighborhood was happy. It is full all the time.

wpDiscuz
Braintrust
"Improved and extended economy private label lines from traditional food retailers who recognize the threat, as well as increased promotional activity from these retailers, will make life harder for these extreme value retailers."
"It is difficult for me to believe that the projected store growth numbers for Dollar General in their current formats are sustainable."

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