DALLAS — Green is the new black at Dollar General Corp.
With deep discounts, value-driven assortments, convenient access and a stable but vital apparel mix that includes basics and fashion, the $6.1 billion budget chain is helping to redefine discount chic as it reaches out to more upscale shoppers and poises to steal market share from big-box competitors.
Softlines, which includes a mix of private and branded apparel, usually account for up to 25 percent of the mix at the discount breed known as dollar stores. The most popular offerings, though, include health and beauty aids, packaged food products, home cleaning supplies, housewares, stationery, seasonal goods such as gardening supplies, and domestics.
Last month, Dollar General said it had opened 58 stores in the four-week period ended May 30. In the first four months of the current fiscal year, the company has opened 281 stores. With these additional stores, it now operates 6,379 stores in 27 states and is the volume-leading chain in the $24 billion budget store sector, which attracts nearly 60 million U.S. households each year. It’s an industry that’s growing about 13 percent annually, with nearly 30 percent of American consumers saying they shop at discount variety stores at least once a month.
While many stores hobble to recover from a couple of years of dismal business, dollar stores continue to sprint.
Dollar General, which at 48 years old is among the pioneers of budget stores, reported that May same-store sales increased 4.9 percent and expects the pace to continue for June, while at rival Family Dollar, with more than 4,800 stores, sales grew 3.6 percent.
In the first quarter, Dollar General reported net income had increased 31.4 percent to $60.3 million, inclusive of restatement-related expenses. Net sales during the first quarter gained 12.9 percent to $1.57 billion.
With low overheads in cheap but strategic rent districts and frugal, utilitarian decor that includes bright lights, wide sight lines, and densely packed and easily accessible shelves and racks, both chains are carving lucrative niches to appeal to target shoppers.
For Dollar General, that includes female heads of household with incomes of less than $30,000 a year who live within five miles of a Dollar General store, which is typically about 6,700 square feet. The average purchase is $8.42. Most of the chain’s items retail for less than $10, with 33 percent priced at $1 or below.Because of the tough economy and shoppers’ value mind-set, Dollar General is attracting a decidedly more middle-income and even upper-class crowd than before.
“One of the fastest-growing parts of our business is the higher-income shopper — the ego thing about being embarrassed to be seen shopping at a dollar store is going away,” said David A. Perdue Jr., chairman and chief executive officer at Dollar General Corp., based in Goodlettsville, Tenn.
“The retail pyramid is broadening at the middle and at the base — people are shopping at mass like never before,” Perdue said. “It’s a long-term systemic change in global retailing. It’s also happening in Europe and Asia and all these shoppers share one thing in common: not enough time and not enough money. I think there’s a broader core customer who is underserved out there and we’re going after that customer with customized merchandising based on income and socioeconomic patterns in a given area. We are segmenting our customers in a way that we never have.”
The chain is currently testing several new concept stores that include new categories, such as fresh produce and more frozen items. Dollar General began adding coolers to its stores in 2001 and currently has frozen sections in nearly 1,000 stores. For now, Perdue ruled out adding pharmacies and large home furnishings, though.
Dollar General categorizes its stores as suburban, urban or rural, the latter being the highest-volume segment of the business, though all three niches hold unlimited growth potential, according to Perdue.
“We’re adding more urban stores each year,” he said. “I would say we’re underleveraged in suburban and urban areas. But overall, there’s an incredible potential to grow Dollar General. Saturation is a long way off. We’re still not in 23 states and we haven’t exhausted the good locations in the 27 states in which we now do business.”
Dollar General has spent over $100 million on sophisticated merchandising technology, including satellites, computers and software, that monitors and helps control inventory planning and replenishment, including basic and/or fashion apparel needs.
“Apparel has great potential to grow at Dollar General. It’s definitely a part of our future,” said Perdue, noting that apparel now accounts for about 10 percent of the total merchandise mix. “I’d like to see apparel grow. Our customers have that need. We’re fine-tuning the blend of basics and trends that we have in each store. In the past, we’ve made some apparel mistakes and the category wasn’t as productive as it could have been. There are some things that we’ve missed. I think our apparel business now is a derivative of other businesses, often an impulse buy, and maybe not yet a destination area.”Dollar General’s women’s and juniors apparel almost never retails above $10 per item and includes a mix of basic T-shirts, sportswear components such as jackets and bottoms, and fashion items including khaki shorts, peasant tops, cotton pique polo shirts, denim dresses and jeans, and Asian and tropical print shirts and shorts. There’s also a big selection of accessories, such as handbags, belts, wallets, socks and shoes, and an array of innerwear from Celebrity by Hanes and private labels. Most innerwear items such as bras are priced at $5 or less.
Most of the women’s and juniors apparel is from private labels such as Premier International or Select. Health and beauty aids also are big business at Dollar General and anchor prime chunks of real estate in most of the chain’s store layouts.
“Nobody wants to waste money,” Perdue added. “I don’t see anybody in America who is not a more efficient shopper than they used to be.”
Editor’s note: This is the second in a series of articles on dollar stores. The first story, on Family Dollar, ran on June 4.
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