Contrary to the current Retail Meltdown from excessive retail outlets and online competition, the dollar store model – simplified offerings to meet basic needs, no-frills buildings or service, and continued investment in markets that show good returns – appears to be attractive to low- and high-income shoppers, as well as to investors. They fill a need, especially in more rural markets.
Dollar General is bucking the retail trend.
By the end of the year, more than three in four Americans will live within 5 miles of a Dollar General, the company noted on the call.
Shares of Dollar General (DG) have climbed 25% this year. Dollar Tree (DLTR), its top discount competitor, has risen 38%.
Dollar General has succeeded thanks to its lean business model, said GlobalData Retail analyst Neil Saunders. Its smaller stores sell cheap day-to-day essentials, especially in rural areas where it doesn’t make sense for Walmart or other large retailers to open up shop.
“The company [is] the closest and most convenient general merchant for millions,” said Saunders.
Sales were up 4.3% last quarter at stores that were open a year ago, a sign of retail health. Revenue last quarter ballooned to $5.9 billion — an 11% uptick from last year — in part from hurricane-related spending in Texas and Florida.
More middle income and affluent shoppers are helping lift Dollar General’s overall sales. The expansion, especially in metro areas, will allow it to continue reaching these shoppers, said Saunders.
But lower-income Americans remain the store’s primary customers. The stores attracted shoppers during the economic downturn in 2008 and 2009, and consumers haven’t stopped coming back since, even as the economy has picked up steam.