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Dollar General Bets on Store-In-a-Store Concept

Dollar General (DG) wants to give its customers the best of both possible worlds.

The dollar store company has opened two Nashville locations that now operate as a store-within-a-store, combines DG Market with pOpshelf and allowing DG to offer items like home décor that aren’t part of its traditional assortment.

“We are thrilled to enhance our customers’ shopping experiences through our new DG Market + pOpshelf store-within-a-store concept, which further demonstrates our innovative spirit and track record of format development,” Todd Vasos, DG’s CEO, said. “Through this combined format, we aim to deliver the value and products customers trust from a DG Market with the continually-refreshed merchandise including beauty and seasonal products, home décor and arts and crafts through pOpshelf. We have been pleased with customers’ positive initial reactions, and we look forward to welcoming additional customers to experience our newest format.”

In a management meeting last month, Dollar General CEO and chief financial officer John Garratt  indicated that the new store-within-a-store model is expected to be available in 25 larger format DG locations this year, with pOpshelf centered within the store, according to Telsey Advisory Group’s Joseph Feldman. The new concept “could become a strong future growth driver for the company,” he added.

Jefferies’ Corey Tarlowe said the store-within-a-store “format innovation is likely to be a key driver of DG’s success ahead.” Given the promising early results of the pOpshelf concept, the inclusion of a smaller footprint pOpshelf shop into a larger format DG Market store “could enhance the unit economics of DG Market stores ahead,” Tarlowe added.

As of April 30, 2021, DG operated 17,426 doors across 46 states. In addition to its private-label brands, it also sells national brands including Hames, Unilever, Procter & Gamble and Kimberly-Clark.

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The dollar store operator began working on pOpshelf last October, with the idea of providing a “differentiated shopping experience” for suburban shoppers. About 95 percent of the new concept’s merchandise is priced at $5 or less. The stores are larger than the usual Dollar General location, with an eye toward offering customers less clutter and wider aisles. In February, DG opened eight pOpshelf doors.

DG, which targets customers with annual household incomes of $40,000, has several concepts within its arsenal to attract a wider customer base. It initially piloted an urban store concept, also in Nashville, called DGX back in 2016 that now has 22 locations. The 3,000-to-7,000 square-foot stores target millennial urbanites by offering quick service items, coffee and other food items on-the-go, groceries and sundries. DG believes it can grow the DGX banner to 1,000 locations. It hasn’t yet stated how many doors might be possible for its new store-within-a-store concept.

In May, DG raised 2021 guidance after posting better-than-expected first quarter earnings results. Profits rose 4 percent for the three months ended April 30 to $677.7 million on a 1 percent decline in net sales to $8.40 billion. While same-store sales fell 4.6 percent for the quarter, they also rose 17.1 percent compared to the comparable 2019 quarter. By category, apparel was up 22 percent in the quarter, followed by home at up 14.7 percent. Online sales remain a small percentage of the overall business. In addition to pOpshelf, other initiatives at DG include its smaller format DGX concept, store remodels and its DG Fresh food supply chain transformation.

DG purchased six months of core inventory in late 2020 and early 2021 so it could meet customer demand, Telsey’s Feldman noted, citing the low-cost chain’s private trucking fleet with over 500 drivers as a “big win” for the retailer that gives it control over distribution and leverage with transportation firms.