Dollar General is doubling down on brick-and-mortar by building bigger stores and expanding Popshelf, a new chain aimed at higher-income, suburban customers.
On Thursday, the discounter laid out aggressive plans for the fiscal year that called for the company to open 1,050 stores, remodel 1,750 sites and relocate 100 others.
As it builds new stores, shoppers will see larger sales floors and more merchandise. They’ll also notice more branding for Popshelf, which the retailer debuted in the fall. The company is testing both new locations and using the brand to create a store within a store.
Sales of grocery staples and household essentials helped drive Dollar General’s sales growth throughout the pandemic as consumers cooked more at home and watched their budget during a period of economic uncertainty. Its same-store sales rose by 16.3% in the fiscal year.
In recent months, however, shares of pandemic beneficiaries — including Dollar General — have fallen as investors bet that Americans will divert their dollars toward dining out and traveling once they get vaccinated. On a Thursday earnings call, Dollar General CEO Todd Vasos made the case why investors should continue to bet on the company. He said the retailer can boost profits by growing its footprint, selling more non-consumable items that have higher margins than food and appealing to a broader range of customers.
Chief Operating Officer Jeff Owen said the retailer estimates it could add as many as 17,000 stores across the country — a move that would roughly double its footprint.
“Overall, our real estate pipeline remains robust and we are excited about the significant new store opportunities ahead,” he said.
As Dollar General adds, remodels and relocates stores, Owen said, it will increase the square footage of its sales floor to make more room for coolers of produce and fresh meat, a bigger assortment of health and beauty products and additional checkout lanes.
Vasos said Dollar General tested the larger store formats in 2020 and found they outperformed the rest of the chain with higher sales. It already has some larger stores with a wider assortment of food and general merchandise.
Dollar General plans to have 50 Popshelf stores by the end of the fiscal year, more than its original goal of 30, Owen said.
The retailer opened the first two Popshelf stores in the fall near Nashville, Tennessee. Popshelf sells home decor, beauty items, cleaning supplies and party goods, with almost all items costing $5 or less. Its target customer has an annual household income ranging from $50,000 to $125,000 — higher than the $35,000 to $40,000 annual household income of a typical Dollar General customer, according to the company.
Owen said the Popshelf stores offer “a fun, affordable and differentiated treasure hunt experience delivered through continually refreshed merchandise.” He said the company wants to expand from its current five stores faster than it planned because of results it saw.
Dollar General will kick off a pilot that blends together its namesake brand and Popshelf, he said. At 25 stores, customers will see signs for both labels at the entrance. Inside, Popshelf will be prominently featured in the center as a store-in-store, he said.
The tests will focus on areas where customer demographics are somewhere between those of Dollar General and Popshelf — with a $50,000 to $75,000 household income range, Vasos said.
“If it works — and we believe it will — there could be some additional ones that we do in 2022 and many more as we continue to move forward,” he said.
Shares of the company have risen about 21% over the past year, as of Wednesday’s close. They were down by less than 5% on Thursday afternoon. Earlier, the company posted fourth-quarter earnings that missed estimates and forecast same-store sales would decline 4% to 6% in the coming fiscal year against the unusually high sales levels caused by the pandemic. Looking over a two-year period, Dollar General’s forecast implies 10% to 12% annual same-store sales gains.
Source: Business - cnbc.com
