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"We actually believe we can do more in 2014 with less SKUs. We have discovered there are categories we can expand and categories we’re going to contract."
—RICK DREILING, Dollar General
Dollar General Corp., Goodlettsville, Tenn., plans to pursue a “lifecycle remodeling” program for its smallest stores rather than relocating them, Rick Dreiling, chairman and CEO, told investors Thursday during an earnings call.
The stores in the lifecycle program run between 5,700 square feet and 6,500 square feel — “stores that are undersized by our current standards that historically we might have relocated,” he explained.
“But they’re in keeper sites now, and we don’t have the opportunity to expand them, so we’ve done some experimentation working with a smaller store —going in and refreshing it and making the commitment to the right categories that are there rather than trying to play in every category — really focusing on those that are most productive.
“It’s costing us about 30% less to remodel them, and they’re generating a return that’s 25% to 40% higher,” he noted.
Besides the lifecycle program, Dollar General plans for 2014 include leveraging category management; making more efficient use of labor; and seeking to reduce costs so it can reinvest in the business, Dreiling said.
Dollar General is very focused on SKU productivity this year, he pointed out. “We actually believe we can do more in 2014 with less SKUs. We’ve examined a lot of categories, and we have discovered there are categories we can expand and categories we’re going to contract.”
One category being contracted is health and beauty care, he said. The company eliminated 300 SKUs in the category late last year, with another 300 scheduled to be eliminated this year. “This is an area where we may have overestimated our customers’ willingness to purchase these higher-ticket items and underestimated the risk of shrinkage,” Dreiling explained.
However, the non-consumable side of the business remains ”incredibly important,” he added., particularly in categories like hardware and automotive “where we think we can really play well and where we’re pleased with the assortment. We just need a little more help from the economy.”
Eliminating non-value-added work will free up store and district managers “to be more involved in merchandising and store standards,” he noted.