GOODLETTSVILLE, Tenn. -- Dollar General Corp. has announced plans to focus on upgrading its existing store base by closing 400 stores that do not meet the company's real estate criteria, decelerating its new store growth rate through fiscal 2008, remodeling or relocating a number of stores to improve productivity and by eliminating its packaway inventory management model by the end of fiscal 2007, allowing for newer and fresher merchandise.
And TIO Networks Corp., owner of the TIO automated bill payment and financial services network, has inked an agreement [image-nocss] with Dollar General to test hybrid ATMs at 52 locations in Tennessee by yearend.
Dollar General has 8,276 discount stores offering consumable basic items that are frequently used and replenished, such as food, snacks, health and beauty aids and cleaning supplies, as well as a selection of basic apparel, housewares and seasonal items at everyday low prices.
The Goodlettsville, Tenn.-based company said that these initiatives are part of its ongoing efforts to enhance its customers' shopping experience by making stores more appealing, fresh and easy to shop and by improving the mix of merchandise offered. It said it expects that these actions will drive better-disciplined inventory management and a more productive store base and will enable stronger and more profitable growth.
Dollar General has also named David L. Bere' as its new president and COO, effective today. Bere' has been a member of Dollar General's board since 2002 and will remain on the board. He will report to David A. Perdue, chairman and CEO, and will be responsible for overseeing the business operations. He most recently served as corporate vice president of Ralcorp Holdings Inc. and as the president and CEO of Bakery Chef Inc., a manufacturer of frozen bakery products that was acquired by Ralcorp in December 2003. He was also with The Quaker Oats Co., where he served as president of the breakfast and Golden Grain divisions.
In its second-quarter earnings release, the company said it was considering accelerating its recently enhanced real estate strategy and modifying its historical inventory management model. The current announcement reflects a plan, approved last week by the board, based on a comprehensive analysis of the performance of each store and the impact of the packaway inventory model on its ability to effectively serve its customers.
In connection with the accelerated implementation of this new inventory model and planned store closings, the company will incur higher markdowns on inventory during the transition period and expects to recognize additional pre-tax costs and charges of approximately $138 million, including $74 million related to store closings and $64 million related to the elimination of its packaway inventory management model. Of this total, approximately $80 million will be reflected in financial statements for the fiscal 2006 third quarter ended November 3.
As a first step towards revitalizing Dollar General's store base, the company has completed a strategic review of its real estate portfolio and plans to close approximately 400 stores during fiscal 2007. These closings will be in addition to those closed in the normal course of business. The retailer will continue to evaluate its store base for additional closing candidates as part of its revitalization efforts.
As part of its new store strategy, the company currently expects to open a total of approximately 600 new stores in fiscal 2006. Going forward, it plans to open approximately 300 and 400 new stores in fiscal 2007 and 2008, respectively, and to relocate or remodel approximately 300 stores in each of these years. It plans to return to a higher rate of store openings thereafter, beginning in fiscal 2009, when it plans to open approximately 700 new stores and relocate or remodel 450 stores. It will continue to apply rigorous criteria to new and existing stores and will look for other enhancements to optimize its real estate strategy for profitable growth.
We want our customers to enjoy shopping at Dollar General and to find the right stores in the right locationsstores that are appealing, clean, and convenient, said Kathleen Guion, division president of store operations and store development. We believe our new real estate strategy and tools enable us to more accurately identify which stores we need to open, close, relocate or remodel - leading to a more strategic portfolio of high-potential stores and allowing our operations team to better focus and deploy resources where near-term opportunities are greatest. Long-term, we believe this model still provides the potential to grow square footage by as much as 10% per year. By reinforcing our current portfolio now, we will be better positioned to exploit this potential in the future.
To better meet its customers' needs and to ensure an appealing, fresh merchandise selection, the company will discontinue its traditional packaway management model. With few exceptions, it plans to eliminate, through in-season and other markdowns, existing seasonal, home and apparel packaway merchandise by the close of fiscal 2007. In addition, beginning in fiscal 2007, Dollar General plans to clear virtually all current-year nonreplenishable merchandise by taking end-of-season markdowns, allowing for increased levels of newer, current-season merchandise.
The company believes this strategy change will enhance the appearance of its stores and will positively impact customer satisfaction as well as the store employees' ability to manage stores, ultimately resulting in higher sales, increased gross margin, lower employee turnover and decreased inventory shrink and damages. It also expects this improved SKU management will result in more appropriate per-store inventory levels.
Removing the packaway component from our inventory management model enables us to be more flexible in our merchandising efforts, react more quickly to customer demands and keep our merchandise selection fresh, said Beryl Buley, division president of merchandising, marketing and supply chain. It will enable us to be more disciplined and agile in our buying decisions and pricing strategies going forward, which we expect will strengthen our margins and support same-store sales growth once implemented successfully.
Burnaby, B.C.-based TIO's hybrid ATM combines the functionality of a traditional, cash-dispensing ATM with a cash-accepting financial services kiosk. The hybrid platform enables customers to make ATM cash withdrawals using debit or credit cards and pay bills, purchase prepaid wireless and a host of other functions. Patrons can pay their bills by leveraging TIO's real-time intelligent links with a number of the largest U.S. telecommunications, cable and utilities companies. Customers can feed their cash directly into hybrid's note acceptor and complete financial transactions by either printing or e-mailing their receipt to an email address of their choice.
The hybrid machines are the X4000 series ATM and cash accepting sidecar developed by Tranax Technologies, Fremont, Calif. TIO networks will process all transactions associated with the hybrid, except for the traditional cash withdrawal related services. TIO and Dollar General will share in the service fees generated from both the ATM and financial service transactions. These hybrids leverage the reverse vault cash methodology jointly pioneered by TIO and Palm Desert National Bank, which provides all vault cash, reverse vault cash, backoffice settlement and sponsorship services.
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