Dive Brief:
- Dollar General plans to close 96 of its namesake stores and 45 Popshelf stores, the company said Thursday as part of its Q4 earnings announcement. The retailer also plans to convert six Popshelf stores to Dollar General in Q1.
- At the same time, the company is moving forward with plans to open 575 new stores in the U.S. this year. It’s also pushing ahead with full remodels of 2,000 stores and partial remodels of 2,250 stores. The company is slated to relocate 45 stores as well.
- Though the company saw its fourth-quarter net sales rise 4.5% to $10.3 billion in the fourth quarter, net income fell 52.4% to $191.2 million. Full year net sales rose 5% to $40.6 billion, while net income fell 32.3% to $1.1 billion. Its full-year same-store sales increased 1.4% year over year.
Dive Insight:
As macroeconomic issues and inflation continue to pressure consumers, Dollar General is sharpening its focus and devoting more resources to improving its in-store experience.
The 96 Dollar General stores slated for closure, most of which are in urban locations, had “become increasingly challenging to operate” and likely would have closed when their leases expired, CEO Todd Vasos said during an earnings call.
The Popshelf closures represent a more significant portion of its footprint. Following the closures and conversions, the Popshelf banner will shrink by 22% to 180 locations.
Dollar General introduced the higher-priced Popshelf concept nearly five years ago. The company said it’s still optimistic about the brand’s future as many Popshelf stores have seen double-digit sales growth. Dollar General expects to improve Popshelf’s sales results through new brand partnerships and a better in-store experience, and said it’s also using insight from that brand to refocus Dollar General’s nonconsumable offerings.
But analysts have expressed doubts about Dollar General's store footprint. While reducing the company’s store count is a step in the right direction, Wells Fargo analysts led by Edward Kelly said “more aggressive action may be needed given the deterioration in new store returns.” The recently announced store closures represent just a small percentage of the company’s physical store footprint, which was 20,594 as of Jan. 31. Last year, the company said it planned to open 800 new stores, remodel 1,500 locations and relocate 85. Dollar General reported its net store growth was 608 as of January.
Dollar General plans to work on improving its in-store experience by simplifying operations through reducing inventory and SKUs, Vasos said. The retailer is also refining and improving distribution center sorting and case packing, with the goal of getting products on shelves with fewer touches.
After eliminating most self-checkouts last year, the company plans to roll out its next-generation point-of-sale system by the first half of this year. “Ultimately, we believe these efforts focused on our core business will build on the progress we've made and allow us to better serve our stores and our customers,” Vasos said.
For the full year, the company expects net sales growth ranging from 3.4% to 4.4% and same-store sales growth in the range of approximately 1.2% to 2.2%.
While the company’s turnaround and growth initiatives are starting to deliver, the economy is not solely to blame for Dollar General’s performance slowdown, Neil Saunders, managing director of GlobalData, said in emailed comments. He said the retailer has room for improvement on store experience basics.
“Blocked aisles, out-of-stocks, and inadequate staffing still plague many stores, and these things are ultimately dilutive to sales,” Saunders said. “We are also detecting some erosion of customers within the middle- and higher-income segments – cohorts which mostly use Dollar General in more rural areas because it is convenient.”
There's also a challenge coming from Amazon as it expands same- or next-day delivery to more rural locations. Shoppers are switching to the e-commerce giant for essentials, which is “modestly unhelpful” to Dollar General, Saunders said.
As the convenience of delivery presents a challenge, Dollar General is partnering with DoorDash to offer delivery from over 16,000 stores. In addition to growing sales through that channel, the company recently launched a pilot offering same-day home delivery in 400 stores. The company plans to expand that service to up to 10,000 stores by the end of this year, according to Vasos.
“While it's still very early, we've been pleased with the initial customer response to this offering, including higher average baskets than those in our brick-and-mortar stores,” Vasos said. “We believe our expansive real estate footprint uniquely positions us to offer a compelling home delivery option and ultimately become the fastest delivery alternative for customers in our communities.”
