Should Walmart open its own dollar stores?

Discussion
Photo: Dollar General
Jun 09, 2016
George Anderson

It’s been more than a decade since former Walmart CEO David Glass identified dollar stores as the biggest threat facing Walmart. Over that time, Walmart has been rumored as a potential suitor in the market to acquire Family Dollar (it didn’t, Dollar Tree did) and even toying with the idea of creating its own dollar concept.

The very question of whether Walmart should be in the dollar store business was put to current CEO Doug McMillon at the company’s annual shareholders meeting. His answer was no. The reason? “We can’t do everything,” he was quoted by TheStreet website as saying. Walmart ended its Express small-store concept, seen by some as its answer to dollar stores, earlier this year.

One thing Walmart can do is play the pricing game that led to becoming the largest retailer on the planet. The company has emphasized getting back to its roots (lower prices) since Mr. McMillon took the helm in 2013. Since that time, Walmart has engaged in becoming more efficient across a number of operational areas, all with the stated intention on passing some of the savings onto customers.

Just last week, the retailer’s planned pilot using drones in distribution centers was identified as a possible means to further reduce the cost of goods. The company also recently announced plans to roll back prices on goods following the modification of its Savings Catcher price-matching program.

Still, the chain that might well be called the Walmart of dollar stores, Dollar General, continues to increase store traffic and sales. The chain, which has over 12,700 U.S. stores, achieved a two percent-plus gain in same-store sales in its first quarter.

DISCUSSION QUESTIONS: Do you see Dollar General as a bigger competitive threat to Walmart than other rivals such as Amazon.com, Costco, Kroger and Target? Is Walmart’s competitive response to the dollar store threat satisfactory or do you think it needs to take other steps, possibly opening its own stores, to address the situation?

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12 Comments on "Should Walmart open its own dollar stores?"


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Dr. Stephen Needel
BrainTrust

There are lots of reasons why shoppers do or do not shop in dollar stores and do or do not shop in Walmart. I think Walmart’s better off doing what they do best, and that’s not being a dollar store.

Steve Montgomery
BrainTrust

It is very difficult for companies whose business model relies on large locations with high volumes to successfully operate smaller formats. The reason they have success with their historic business model is that they have constantly refined it over the years to be able to provide a wide array of goods at low prices.

Smaller dollar store type formats are not just smaller stores — it is a completely different business model, with higher cost to deliver and operate on a per sales dollar basis.

Few companies have been successful in doing both. One example that has is Kroger with its c-stores. They have done a great job of recognizing the difference between the formats and adjusted their respective organizations to reflect the realities of the difference in the two business models.

David Livingston
Guest
2 years 10 days ago

It sounds like Dollar General is going backwards because you need about 3% same store sales growth to be even with inflation and population growth. As for Walmart, why not open limited assortment grocery stores like Aldi or a chain of convenience stores? Same old boring story about what Walmart should do. Walmart knows what they should do and I’m not going to pretend I know better than them.

Paula Rosenblum
BrainTrust

Dollar stores are going to continue to nip at the edges of Walmart’s market basket. That’s just the way it is. I don’t think the company can manage small format stores or they would have implemented lots of them by now.

I don’t think Amazon is as big a threat because I think the customer is different.

Walmart is just going to have to be satisfied being a $400 billion retailer. I don’t see it getting much bigger.

David Slavick
Guest

Walmart has its own dollar stores — they are called Walmart. The category is well penetrated. If Walmart saw an opportunity, it would take advantage of it and dominate. This particular segment of specialty stores placed within strip centers is not it. Better to invest in new stores internationally or serve population growth areas with new Walmart or Sam’s Club locations.

Lee Kent
BrainTrust

I just don’t see customers trading in their Walmart shopping habits for dollar stores. A little of both and maybe the dollar store component is growing, but not THAT much. So I can’t jump on the bandwagon that the dollar stores are Walmart’s biggest threat.

Walmart is on the right track in looking for efficiencies and kudos to Mr McMillon, Walmart “can’t do everything.”

And that’s my 2 cents.

Richard J. George, Ph.D.
BrainTrust

There is no doubt that Walmart considers the dollar stores and other extreme value retailers as “ankle biters.” While I could envision Walmart acquiring a dollar store format, I neither see the company including it under a Walmart banner nor developing its own dollar store with a Walmart name on it.

Walmart needs to continue to defend against the other rivals noted in the article, particularly Amazon, Kroger and WinCo. These three competitors are a more significant threat to the long-term growth of Walmart than dollar stores. In particular, Amazon has demonstrated the ability to take share from Walmart. Even though Walmart is the world’s largest retailer, its market capitalization is only two-thirds of Amazon’s (Amazon Market Cap = $316B; Walmart Market Cap = $210B).

Walmart needs to continue its strategic efforts to defend against these large predators. As for the “ankle biters,” I recommend that Walmart stock up on OFF! FamilyCare Insect Repellent.

Camille P. Schuster, PhD.
BrainTrust

Walmart can not do everything. In the recent past, Walmart has experimented in a number of different directions — finance, health care services, different store formats and sizes, and changing product assortment between stores. Identifying a strategic direction compatible with its mission should provide focus and keep the company from veering off into directions that dilute its resources and efforts.

Brian Kelly
Guest
2 years 10 days ago

Wait. What? Wasn’t that Walmart Express?

Or as we like to say, “retail ain’t for sissies!”

Dave Wendland
BrainTrust

In my opinion, this would be a distraction to Walmart and equally distracting to their customers. As was stated previously, Walmart shoppers expect value when they shop Walmart and that needs to be the focus on their core operation. Dollar stores threaten every retail format and they will continually improve their operations and the overall consumer shopping experience. That said, Walmart is advised to keep their eye on the ball and improve their operations and overall shopper experience, all the while sharpening their pricing pencil.

Craig Sundstrom
Guest

I don’t think this is an “either/or.” The stores — “stores” in the case of Amazon — all sell different items and/or at different price points. “Biggest” is a transitory matter of who happens to be biggest this year.

I think WMT’s response is entirely correct: sometimes the best response is not having one … other than simply improving upon what you do best.

HY Louis
Guest
2 years 9 days ago

David Slavick is correct because Walmart already has dollar type merchandise in its stores. Often priced below a dollar. There really would be no point in undermining their own stores with small outlets. Supervalu tried doing a limited assortment concept called Save-A-Lot and it has failed, now they are trying to unload it. Food Lion tried a low price version called Bottom Dollar. Giant Eagle tried Good Cents and it failed. A&P tried Food Basics — it bombed. Jewel tried Jewel T — it bombed. Fleming tried Yes!Less — big failure. Walmart is best to continue doing their dollar store within a store rather than waste valuable real estate with smaller units.

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