DALLAS -- The dollar-store market in the U.S. can accommodate thousands of additional stores and faces no immediate threat of saturation, executives of the industry's top retailers said, according to a Wall Street Journal report.
Family Dollar Stores Inc., the No. 2 U.S. dollar-store chain by sales, sees enough room for expansion in the U.S. to double its 6,000 stores. And Dollar General Corp., the leading dollar-store chain by sales, intends to open hundreds of new stores each year even as it launches a new program for evaluating the closure or relocation [image-nocss] of stores.
Howard Levine, Family Dollar's chairman and CEO, said dollar stores can continue to expand due to the rapid growth of low-income households in the U.S., namely Latino and single-mother homes. As well, many dollar-store chains have yet to push into California and to urban markets in major U.S. cities, he said.
Any expansion, however, would build on an already substantial base, the report said. Dollar General operates nearly 8,100 stores. No. 3 player Dollar Tree Stores Inc. operates more than 3,100 stores. And Family Dollar, Matthews, N.C., this year reined in its expansion plans to 350 new stores from its typical 500 to allow it time and resources to improve its processes for selecting store sites and opening new stores.
There's a lot of talk about saturation, Levine said at a William Blair & Co. investors conference in Chicago. We continue to believe that we have substantial opportunities for growth in this country, and that some of our slowdown in store openings has more to do with us slowing down some [initiatives] we were having issues with and speeding up those we were having success with. We're excited about the growth prospects out there.
Click here to view a webcast of Levine's William Blair & Co. presentation.
Family Dollar has bolstered the sales of its established stores with new programs such as adding refrigeration units to stock refrigerated and frozen foods. For the past year, it has strived to bolster its stores in big cities by beefing up security measures and improving its hiring to reduce turnover among its store managers.
Even so, the retailer remains frustrated with the slow progress of its improvements to its processes for opening and operating new stores, Levine said. Those issuessuch as site selection for new storesmust show significant progress before Family Dollar will return to its previous expansion rate. Longer term, we'd like to return to our historical growth of 8-10% [annually], Levine said. However, we would like to see our returns on capital improve before we consider a more aggressive [expansion].
Dollar General, Goodlettsville, Tenn., sees significant opportunities in states where it is already established as well as those it has yet to enter, Chairman and CEO David Perdue said Wednesday at the William Blair conference.
Click here to view Perdue's William Blair & Co. presentation.
Perdue acknowledged that a time will come when dollar stores saturate some of their earliest markets, namely southern states such as Tennessee, Kentucky, Georgia and North Carolina; however, he added that on a recent trip to Georgia he noticed that there remain some areas without dollar stores where people must drive 20 miles to the nearest big-box mass merchant such as Wal-Mart.
Even so, Dollar General's expansion will now be more deliberate due to new procedures it has adopted. We may still open 600, 700, 800 stores, but we're also going to do it with a strong review of the number of stores that need to be relocated, the number of stores that need to be refurbished, the number of stores that actually need to be closed, Perdue said. That has never happened before.
He added that a small amount of cannibalization will not hurt Dollar General if the new stores it adds in a given market boost its share of sales in that market. Dollar General accounts for such a small portion of its customers' spending that the retailer can weather some cannibalization if that results in customers buying more from the retailer. I'm more concerned about productivity per square foot, frankly, than I am about growth in square footage, Perdue said. However, as long as the two are growing nicely and I can do that without overcannibalizing, we'll continue to do that.
For its quarter ended May 27, Family Dollar reported sales of $1.57 billion and a net of $56.9 million. For its quarter ended May 5, Dollar General posted sales of $2.15 billion and a net of $47.7 million, said the Journal.
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