As retail stores were going under across the nation, the commercial real estate company, Cushman & Wakefield, was searching for bright spots in the industry. For 5 years running, Cushman realized, a dollar store had opened once every 4.5 hours, an average of more than 5 a day. “They see a need and are aggressively racing to meet that need for low-cost goods in places that are food deserts,” the firm says.
Dollar General’s sales per square foot have risen steadily in recent years, to $229– less than half of Walmart’s. Their gross profit margins were 31%, though, compared with 25% at Walmart. A Dollar General store also has lower startup costs; it spends about $250,000 for a new store, vs. the more than $15 million Walmart puts into a new Supercenter. The dollar chain thrives mostly on selling low-ticket items and basics, such as toilet paper, that help shoppers on tight budgets get through the week. (Dollar General hasn’t technically been a dollar store for decades, and only a quarter of its products sell for that amount today.)
In 2016, the firm detailed a site-selection strategy focused on small towns, dubbed “Anytown, USA.” It defined the core customer as: “Our Best Friends Forever”—an extremely cash-strapped demographic, with a household income less than $35,000, and reliant on government assistance, that shops at Dollar General to “stretch budgets.” These BFFs represented 43% of its sales. The company’s map shows 13,000 green dots as “remaining opportunities” for new stores—some in low-income urban neighborhoods, but most in small and very small towns.
Classroom discussion questions:
1. How does Dollar General’s location strategy differ from that of Walmart?
2. Are Walmart and Amazon threats to Dollar General?