Although the American economy is full speed ahead on reopening efforts, and stimulus checks are already in pockets or will be soon, discount stores like Dollar General (NYSE: DG) are cautioning investors that 2021 sales aren’t necessarily going to continue their upward trend. In fact, in March 2021, Dollar General projected that same-store sales may fall as much as 6%, and overall net sales will be flat.
But if you thought that was the whole story for investors, in truth, it’s barely the tip of the iceberg. Although discount stores in general are taking a heavy hit right now, they not only have a long history of being survivors in the retail sector, but Dollar General in particular has massive expansion plans for 2021, which may create great opportunities for investors.
Fighting hard to stay ahead
After 31 years in a row of same-store sales growth, this one year of no growth on the part of Dollar General is small potatoes in the bigger picture. And that’s the focus for the discount retailer: the bigger picture. Rather than taking this one year of little to no growth as a sign of defeat, Dollar General is dumping money into new revenue streams.
2021 may not be forecasted to be a year of revenue growth, but it seems to be determined to be a year of growth in footprint and reach. The retailer took advantage of 2020 and completed 2,780 real estate projects, including the launch of a new concept store called popshelf. The popshelf concept isn’t totally unlike the rest of the Dollar General family, tapping into the growing popularity of $5-and-below shops.
This year promises more prototypes and even more groundbreakings. Currently, Dollar General has plans for upward of 2,900 new real estate projects, which includes 1,050 new stores, 1,750 store remodels, and 100 store relocations. Where traditional Dollar General stores were often crammed into smaller locations and had limited offerings, many of this year’s projects will be building on the Dollar General Plus (DGP) and Dollar General Traditional Plus (DGTP) formats.
One new format contains approximately 8,500 square feet of actual selling space, up from 7,300 square feet in the traditional store format. The additional room allows for more space to optimize offerings based on demand, as well as offering more cooler and freezer space.
The second new format is even larger, boasting 9,500 square feet of selling space, and will appear as new real estate projects, relocated stores, and remodeled stores.
The new format advantage
These new formats may seem like a huge investment in uncertain times, but Dollar General has seen a lot of performance improvements in these new store formats. They’ve outperformed the traditional stores on both sales volumes and a comp-sales basis. The smaller new format and the DGP stores should make up about 550 of this year’s real estate projects, and the second new format is going into about 100 new and existing locations.
The larger stores are part of an effort to increase sales space for perishables like produce and meat, as well as additional home goods. Approximately 700 stores will be getting produce this year, bringing the total Dollar General markets with such offerings to 1,800. This is all part of a rollout started last year, known as DG Fresh, which continues to contribute heavily to revenue and profit streams.
The Millionacres bottom line
Because Dollar General stores have a sweeping reach into the American consumer market, with about 75% of people in this country being located within about five miles of a store, the company’s short-term flat profit projection is unlikely to continue. Not only does Dollar General have a long history of profitability, it's already located in communities considered to be food deserts.
Adding a fresh food component in areas traditionally underserved by bigger supermarket chains is not only a humanitarian benefit, it’s an excellent way to fill a void in the existing market that will set the tone for the longer haul. The leadership at Dollar General is absolutely looking out for long-term growth and appears to be focused on slow but steady sources of growth for investors and communities alike.