Dollar General has introduced a smaller-sized format to reach more densely populated metro areas as well as smaller rural ones.
At around 6,000 square feet, the concept occupies about 20 percent less space than its standard 7,400 square foot box. About 30 smaller-format stores have been tested and approximately 80 will open this year.
"Sales productivity and returns based on the early results are very encouraging," said Todd Vasos, CEO, last week on a company's fourth quarter conference call. "By eliminating less productive product segments and adding or expanding product departments to meet the needs of our urban customers, we believe this smaller format store will allow us to have higher capture rate per site selection."
Expenses with the smaller-format stores are expected to be higher in the urban markets and additional consumables will pressure margins. However, with the help of greater traffic, the formats are showing higher sales per square foot than the chain's traditional stores.
Mr. Vasos described the prospective urban areas as "not satellite city as much as true urban-type areas where dense populations, condominium-type living — those type areas. And that's where we've tried to test this and we've seen that success."
The smaller-format openings will focus largely on metro areas in the near term, but will eventually tap "some real opportunities in the rural markets with those lower households."
Encouraged by early success of the small-format stores as well as a prototype launched last year focusing more on perishables and health & beauty, Dollar General raised its long-term annual growth rate for square footage to a range of 6 percent to 8 percent. It plans 900 new stores in 2016, up from 730 new stores last year.
The traditional 7,400 square foot store, which Mr. Vasos called "very, very productive," will remain its primary growth vehicle over the next few years. He added, "If that changes, we'll definitely let everyone know."
- Dollar General (DG) Todd J. Vasos on Q4 2015 Results - Seeking Alpha
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- Dollar General benefits as more customers walk in for small buys - Reuters