Dollar General and Dollar Tree have both announced particularly strong growth in Q1, as the Coronavirus (COVID-19) pandemic has led shoppers to increase purchases of groceries and household products.
Factors contributing to the dollar stores performance
Dollar General saw sales increase by 27.6% to $8.4bn, with same store sales up 21.7%. Dollar Tree's sales increased by 8.2% to $6.3bn for Q1, with same store sales up 7%. There are a number of reasons why the dollar stores are well placed to benefit from the increased sales driven by the Coronavirus pandemic. Here we take a look at their performance and explore what is driving this growth, as well as look at the outlook for 2020.
1. Proximity to shoppers
The stay in place orders that have been introduced across much of the USA have led many shoppers to stay closer to home when purchasing their groceries and household items. Some shoppers are likely to retain this behaviour, even as restrictions lift, having realised that it is possible and more convenient to get everything they need in their immediate area. This will serve the dollar stores well, as they are often located in neighbourhood locations and residential areas. More than 75% of the US population live within five miles of a Dollar General and the small format of the stores helps the shopping trip to be quick and easy. The small size also limits the chance of crowds, which is conducive to social distancing, a measure that is likely to be in place for the foreseeable future. Other initiatives are also being rolled out to increase the convenience further for shoppers, such as Dollar General's Fedex partnership which is being expanded from 4,800 stores to 8,500 by the end of 2020.
2. Providing value
During these uncertain times, offering a wide variety of products and providing good value has increased the appeal of dollar stores, as evidenced by the increase in new shoppers. The closure of some other businesses has also contributed to an increase in traffic. Many people have faced economic hardship during the pandemic and the upcoming threat of a recession means the economic environment is likely to remain challenging for some time. This makes the value assortment more attractive to many shoppers and is likely to result in continued sales growth for the dollar chains.
3. Relevant assortment
Both chains continue to work on initiatives that increase their relevancy for shoppers. For Dollar General, this includes its non-consumables initiative and DG Fresh. The new and expanded product offering within non-food was available in 3,200 stores at the end of Q1 and will be in around 5,000 stores by the end of 2020. The retailer has also continued to roll out its cooler door expansion program, installing more than 15,000 doors in Q1, with a total of 55,000 planned for 2020. It has also progressed with the rebranding and repositioning of its private label brands, including a redesign of its Clover Valley range. Dollar Tree has been rolling out its new Crafter's Square program, adding the assortment to 2,400 stores in Q1. This expanded selection of crafting supplies has proven to be particularly popular during the pandemic and it is likely that many people will continue with these hobbies going forward.
With the increased opportunity to grow sales, Dollar General is maintaining its capital investment plans for store expansion, as well as focusing on strategic initiatives. The retailer expects its 2020 sales to exceed previous guidance, however due to the uncertainty surrounding the current and future environment, it is not forecasting specific targets. During 2020, it still plans to open 1,000 new stores and remodel 1,500, as well as relocating a further 80. At Dollar Tree, capital expenditures are being decreased slightly and it plans to open 500 new stores instead of 550 during 2020. It is also not forecasting sales for 2020 due to the continuing uncertainty, however it is confident that it will be able to provide value to its shoppers and remain in a strong position.
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