Retail is a very tough business. Especially if the company is aiming squarely at serving low-income people.Exactly this General Dollar (DG -0.24%) It’s all about doing However, the company has launched a new store concept called Popshelf. This can be a growth engine for your business and a major headache for your peers. dollar tree (DLTR -1.02%)Here’s what you need to know.
Dollar General sells a wide range of essentials at fair prices. With approximately 18,800 stores in 47 states, it focuses on “convenient neighborhood locations.” The basic idea is that people can walk into Dollar General to pick up basic items like toothpaste, snacks, and laundry detergent. Your target audience is not wealthy customers. Rather, the company seeks to serve the needs of lower-income people.
It’s not a bad approach considering the local corner store is basically gone. This presented an opportunity for Dollar General and was happy to enter. The retailer has been doing pretty well lately, which makes some sense given concerns over the past year’s rampant inflation and slowing economic growth. Overall sales in the third quarter of 2022 he increased by 11.1%, and same-store sales he increased by 6.8%.
Most notably, Dollar General’s same-store sales growth was driven by “an increase in average transaction value and a modest increase in customer traffic.” Basically, it seems like people are buying more and more often. A key highlight here is that while sales of consumables increased, sales of non-essential items such as seasonal items were weak. Fundamentally, the budgets of the company’s key customers were tight, but Dollar General didn’t give up. They simply shifted spending in stores.
What’s interesting here is that Dollar General is in direct competition with its competitor, Dollar Tree. Historically, it went head-to-head with Dollar Tree’s Family Dollar Store concept. But the Dollar Tree store of the same name is working to push prices well above the dollar, the trumpet of that name. As a result, Dollar General now has two direct competitors of his, owned by one company.
This helps explain why Dollar General introduced the Popshelf store concept. According to Dollar General, “This new store aims to provide customers with a fun, affordable and stress-free shopping experience, featuring trending seasonal and home décor, health and beauty essentials, and home cleaning. About 95% of our items are priced at $5 or less, including supplies, party supplies, and entertainment needs!” This is basically what Dollar Tree is trying to do now, but all items start at $1. It works up to a high price.
The Dollar Tree was a fun place to shop because it allowed consumers to find decent items at low prices. The fun is starting to wane as the prices go up. The store with the same name has recently lost a lot of customers. And that’s exactly the opportunity for a new concept from Dollar General. This is fresh and is aimed squarely at high-income consumers who may have started to sour on Dollar Tree products now that prices are on the rise.
Dollar General currently has about 30 pop-shelf stores and believes it can increase that number to 1,000 by the end of fiscal 2025. And each can help keep more customers out of the dollar tree. And Popshelf could actually be a sizable segment, as Dollar General could have a business model nearly identical to Dollar Tree, with its eponymous brand and Family Dollar concept.
But perhaps the most important takeaway for investors is that Dollar Tree is working from a weaker position as traffic is declining while changing the pricing model for the old concept. But Dollar General is actually working from a position of strength as it expands its exciting new store concept.
Investors tend to view exciting new ideas more favorably than tired ones that are basically trying to reinvent themselves. If you’re looking at the $1 store space, Popshelf is a name you’ll want to track in great detail. If it picks up momentum, Dollar General looks more and more attractive, and Dollar Tree could find itself in increasingly stiff competition at just the worst of times.