Dollar General to Accelerate Opening Pace

January 5, 2021

Dollar General, the discount retailer that’s flourished during the pandemic, will accelerate an already galloping pace of new store openings in 2021, planning 1,050 new locations next year along with 1,750 store renovations and 100 store relocations.

The Goodlettsville, Tenn.-based retailer, which already operates nearly 17,000 store locations in the U.S., expects to open 1,000 new stores, remodel another 1,670 units and relocate 110 stores by the end of the current fiscal year on Jan. 29. The fiscal 2021 plan rate equates to more than 20 new stores every week, or as many new real estate projects in a year as a chain supermarket like Publix operates overall. Including the pace at which it renovates or locates stores, it averages a mind-boggling eight real estate projects every day of the year.

With store sizes generally ranging between a compact 7,300 and 15,000 square feet, with many units opening in existing buildings and with a number of locations in rural communities, Dollar General stores are relatively inexpensive to build. The company’s capital expenditure budget for the current year is expected to come in at $1 billion to $1.1 billion.

Speaking in a conference call reviewing its third-quarter financials this week, Jeffery Owen, Dollar General’s chief financial officer, said the company’s 2021 real estate plans include adding fresh produce to about 600 stores—in addition to 1,000 that already have such an offering. About half of its new units—and 75% of its remodels—will open under its “Traditional Plus” format, which include 34 cooler doors vs. 22 for the traditional model, bringing the Dollar General still further into competition with food retailers.

But Dollar General has more than food retailers in its sights. Plans also call for 30 new units of the Pop Shelf concept, a decor and home goods format the company introduced earlier this year and is currently operating in two sites near Nashville.

High Margins in ‘Tame’ Environment
The detail about Dollar General’s ambitions for quickening the pace of expansion came as the retailer revealed dazzling financial results for the fiscal third quarter.

Buoyed by high demand from the pandemic and benefitting from a less promotional environment and fewer markdowns, overall sales jumped by 17.3%, comp sales soared by 12.2% and gross profit as a percent of sales zoomed to 31.3%, a 178-basis-point increase and the company’s sixth straight quarter of increased year-over-year margins.

Sales totaled $8.2 billion in the quarter, which ended Oct. 30.

CEO Todd Vasos said the margin expansion was driven by internal initiatives like DG Fresh, a move to self-distribute food allowing the retailer to maintain value pricing but with higher initial markups. The company’s nonconsumable initiative, known as NCI, in the meantime, is adding variety of higher-margin nonconsumable products that enhance the margin mix, especially now that many non-consumable rivals of Dollar General had struggled in the pandemic, or haven’t recovered fully from shutdowns earlier this year.

All this has come in a relatively benign competitive environment and while high volumes help leverage costs and reduce waste.

“I think it’s important to note that the initiatives like DG Fresh and NCI are really contributing and impactful to the three biggest drivers this quarter,” CEO Todd Vasos said, according to a Sentieo transcript. “First, lower markdowns—with the strong sell through on nonconsumables, we didn’t have to take as much clearance markdowns. … We just continue to be more and more targeted on promotional activity and have less promotional activity necessary. Secondly, when you look at higher initial markups, that was primarily driven by DG Fresh. We continue to see that same substantial cost takeout and that only grows as we scale. And then third, the mix benefit. The key driver there was nonconsumables. Obviously, there’s been a shift in wallet, but I would say that we really positioned ourselves very well with what we’ve done to that part of the box with the impact of NCI and spreading the learnings from that.”

Despite the rising margins, Vasos said Dollar General was maintaining “the very best” positioning on price it ever had, “but we always reserve the right to lower price to ensure that we keep those footsteps coming in Dollar General, and more importantly, service that consumer. As we sit right now, though, we don’t see any evidence and/or need to pull a price lever. The promotional activity, the everyday price activity across retail right now seems to be pretty tame and about the same as it has been for many quarters now.”

Vasos said the chain was gaining market share from a “multitude” of competitors but identified drug chains as the largest “share donor” to Dollar General .

Board Changes at Dollar Tree
Dollar General rival Dollar Tree—which a week ago said enterprise comps in its fiscal third quarter improved by 5.1%—said this week it has appointed Winnie Park, CEO of the omnichannel stationary and gift retailer Paper Source, to its board of directors, and said that two longtime independent directors, Thomas A. Saunders III and Carl P. Zeithaml, have announced their intention to retire at the 2021 annual meeting of shareholders.

Dollar Tree said Park, 49, has led the strategic transformation of Paper Source into a “next-generation lifestyle brand” and is a leader with substantial experience in brand-building, omnichannel, specialty and multibrand retail and wholesale.

Prior to joining Paper Source, Park was EVP of global marketing and e-commerce for DFS Group Ltd., a luxury retailer, from September 2012 to September 2015 and as global VP of fashion for DFS Group Ltd. from September 2006 to September 2012.

Prior to her roles at DFS, Park was senior director of women’s merchandising for the Dockers brand of Levi Strauss & Co. Earlier in her career, she worked as engagement manager for McKinsey & Co., focusing on technology, marketing and retail practices.

“We are very pleased that Winnie Park is joining our board,” saidBob Sasser, Dollar Tree’s executive chairman. “Winnie’s knowledge and experience as both a retail CEO and an independent board member in the public retail sector are a welcomed addition to our board.”

Park said, “I am pleased to have the opportunity to join the Dollar Tree Board. The company has demonstrated momentum in its business, both at Dollar Tree and Family Dollar, in 2020. I am eager to contribute to the board to help the company achieve its goals, especially as it pertains to developing more ways to serve its customer base.”

Saunders joined the Dollar Tree board in 1993 when his private equity firm acquired 50% of the company’s stock. He was lead independent director from 2007 to 2019 and has previously chaired both the audit and nominating and corporate governance committees. Zeithaml, dean emeritus of the McIntire School of Commerce at the University of Virginia, joined the board in 2007 and most recently served on Dollar Tree’s compensation committee.

“Both Tom and Carl have been instrumental to Dollar Tree’s many achievements over the years, and I speak for our entire board to express our gratitude for their dedicated commitment and service,” Sasser said.

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