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Perdue Tuning Up Dollar General

Goodlettsville, Tenn. — After being “humbled” by its weak sales performance during the fourth quarter, Dollar General is mending itself with improvements in merchandising, store operations, brand awareness and experimental projects for 2006.

“We missed the boat in the fourth quarter, and we are working diligently to make this model even more effective,” said David Perdue, chairman and ceo. “We obviously are looking directly at our comp sale environment in 2006 — and what we're doing from a merchandising standpoint and a store operations standpoint to directly impact it.”

During the recent Merrill Lynch Retailing Field Trip, Perdue said of Dollar General's merchandising: “We have a ton of SKUs in these stores that are producing less than $50 a foot — and actually many stores that are already above $200 a foot — but our average is $165 a foot. We are looking at setting higher standards for our traditional stores.”

In particular, Perdue pointed out, he is “not happy” with the way the seasonal, home and apparel categories are performing. “That is a source of weakness,” he acknowledged.

Dollar General is looking to add a bit to its national brand offerings, while also boosting its private label assortment. Currently, Perdue said, one third of the retailer's assortment comprises national brands and “only 19 percent is private label, which is very unusual in this sector. We need to strike a stronger balance between national brands and private label.”

He added that Dollar General isn't getting credit for carrying the many national branded goods it offers. “I happen to believe it's because we have too much 'noise' in the model,” he said. “And we're working to limit that in '06.”

Brand awareness of the chain is also top of mind now for the “small-box” retailer. “We have to communicate more regularly with our frequent shoppers,” Perdue said. “We get 85 percent of our revenue from that shopper.”

A low-key initiative being explored calls for “cleaning up the front end of the store — removing all peg boards and things that have accumulated there over the past 25 years,” Perdue said. Dollar General has found that on the few occasions where the chain has made such streamlining efforts, the comp sales of these stores dramatically increase. “We've only been testing it for now,” he explained.

On promotional policy, Dollar General aims to improve its attention not only for holidays and hot shopping seasons, but also during “mini-drive periods,” like the 1st and 15th of each month, when many consumers receive their paychecks.

As it works on perfecting its traditional model, Dollar General is meanwhile planning to enhance its budding Dollar General Market format, which combines general merchandise from the traditional stores with perishable foods like fresh produce and meats.

The DG Market count stands at 40 units today, with 30 more planned this year. (Total store count for the company is about 7,900 locations.) “Our goal is that a customer can come in and buy a full week's complement of groceries at our store,” Perdue said. “The pressure is on each one of those SKUs being productive. We've learned a lot of about what each customer's need is in that limited SKU environment. They like the limited price environment and we're learning to match the attractiveness of that with the limited assortment availability.”

Even though the perishable food is a point of differentiation from the retailer's traditional model, customers are still shopping for general merchandise at DG Markets, keeping this format development a relevant aspect of the company's strategy, he said, remarking that the time has not yet come to “blow it out yet. It's a source of excitement. It's a laboratory where we are learning about new SKUs, new opportunities, new pricing strategies and so forth as we roll out what is successful there into our network of traditional stores.”

“It is a destination model,” Perdue said, “as opposed to the traditional Dollar General store which is not a destination model.”

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