GOODLETTSVILLE, Tenn. — Dollar General here will shutter 400 locations next year and slow its development pace for the next two years, the discount chain said last week.
It also will deploy a more promotional marketing strategy and eliminate its “packaway” distribution system in favor of a system that is more responsive to store demands.
In a conference call with investors, the company said it remained committed to its Dollar General Market concept, the hybrid format that includes a perishables offering and general merchandise in a 15,000-square-foot store.
“We are still excited about the idea of combining general merchandise and groceries,” said David Purdue, chairman and chief executive officer. “We have a lot of different tests going on with DG Market in terms of their size and the offering, and we will continue to test it.”
He said that in light of the company's decision to pull back on its growth plans, he would “not pressure” the leaders of the Dollar General Market format, which now includes 50 units, to expand rapidly next year, but the banner “will continue to add stores.”
In addition, he said the company hoped to drive profit-margin gains throughout the chain with the addition of more private-label consumable products.
The addition of more low-margin consumables in the past few years has pressured margins, the company said.
Following Dollar General's announcement, Jackie Oberoi, an analyst with debt-ratings agency Standard & Poor's, New York, revised her outlook on the company's debt to “negative,” citing the ongoing pressure on margins through 2007.
Dollar General will take $138 million in charges, which include $74 million for the store closings and another $64 million related to the adoption of the new inventory model, which it said would allow it to deliver fresher merchandise to its stores.
The closings will be spread throughout Dollar General's operating area, Purdue said, although Texas will have an “inordinate” number of stores shut down.
After opening an estimated 600 stores this year, the chain will add 300 new stores next year and 400 in 2008. It plans to ramp up expansion again in 2009 with another 700 new stores. It will also remodel or relocate about 1,050 stores in the next three years.
Also, Dollar General last week said it had selected one of its board members, CPG veteran David Beré, as president and chief operating officer, a post that had been vacant for more than two years, since Lawrence Jackson left to join Wal-Mart Stores, Bentonville, Ark.
“I am very confident in our leadership team at this point in time,” Purdue said.