The dollar store industry has dominated value retailing recently. Over the last four years, Dollar General has increased their sales by 35% and their market cap by well over 100% to $16 billion, while JCPenney sales have declined by 26% and their market cap has declined dramatically from the high of $11.9 billion in 2009 to $3 billion today. For the dollar store industry, and especially Dollar General, it comes down to having a clear position in the market and making significant investments to drive growth.
Dollar General, along with the second largest dollar store Family Dollar, has been very successful in staking out the convenient value proposition in the market, primarily targeting the fill in trip for the value oriented consumer. It is not by accident that they have been able to maintain a strong comp store growth, and also aggressively open new stores. It comes down to the investments they have made over the last few years and changes in their mix to address the needs of their customers. Between the two key players, they have made significant changes and investments:
- Updated their assortments to include more consumables and food to drive trips into their stores.
- Aggressively remodeled stores to improve the shopping experience and overall standards.
- Significantly expanded skus to improve relevancy with consumers and increase square foot productivity.
- Invested in systems and processes that allow them to tailor their assortments based on store attributes and more quickly react to changing trends.
- Invested in support organizations such as global sourcing, category management, pricing, and space optimization tools to drive sales and margins.
It’s clear that the dollar stores are on the right path based on their growth, their position with their customer and the investments they have made. However, based on their mix shift, they will continue to be under constant margin pressure for the foreseeable future. JCPenney on the other hand is on an unknown path at this point.