Dollar General - Why They're Successful

[Music] you know it's just nice to see a business doing so well especially a retailer how often do you hear about them declaring bankruptcy and closing stores and losing sales I talk about it on this channel all the time but Dollar General is truly doing well they started in the 1950s have roots going all the way back to the 1930s I'll talk about all of that but they've always been fairly successful a few stumbles and slow periods here and there early on but ever since the start of the 1990s pretty much all positive let me show you some numbers going back 25 years that are almost too good to be true look at this sales graph in a time of failing retailers all over the place this is their sales graph they have grown 17 times higher in the course of 25 years without a single declining year every single bar is higher than the one before it to go along with this at their number of stores over this time it's grown from two thousand to over fifteen thousand there were two years in 2007 and 2008 where they closed more stores than they opened but obviously they came right back from it but the most impressive graph in my opinion is their same store sales I know it looks all scattered when you first see it but keep in mind this represents an average of how much each store sold when compared to the previous year some years were in double digits other years were less than one percent but they were all positive you'd actually have to go back thirty years to find a negative which I doubt you could say about any other major retailer that exists today so let's talk about how they got to this point in the potential reasons behind all of this success JL Turner he's important here during the Great Depression he had sort of a depressing job see it back then there were a bunch of general stores and since consumer spending was way down and they were struggling many of them to the point of bankruptcy JL would actually search for the ones that had gone bankrupt buy it at a low price and just liquidate everything like I said it's not the happiest business but I suppose he was turning a negative into a positive by finding a way to benefit from the bad economy JL had a son named Cal Turner who was a teenager at the time but he was very involved in helping out with everything in 1939 once the economy started taking a bit of a turn jl decided to abandon that business in favor of starting a wholesale business that would provide dry goods to the surviving general stores and other retailers this time his son Cal had a bigger role so the wholesale business JL Turner started with his son was called JL Turner and son wholesale not the most creative name but it does relay a lot of information after a few years they made another shift by abandoning the wholesale end of things and switching to the retail and meaning they went from providing the stores with their stuff to becoming the store themselves and they were successful and nothing too major but their chain of department stores impressively grew to 35 locations over the next decade I'm sure this won't apply to most people watching this but if you are living in the Kentucky or Tennessee area in the early 1950s there's a decent chance that you've been to one of them but in 1955 is when they found their identity and started morphing into the store that we know today it's a genius idea at this point the concept of a dollar store was non-existent but there was something called dollar days you still see it sometimes today it's when a store has a big sale and for that week a select group of items or a dollar each well Cal Turner the son saw how effective those sales were and had the idea of opening a store at where it was always dollar days for every item effectively inventing the concept of the dollar store actually thinking back to one of my previous videos it was a very similar thought process by FW Woolworth that led to the creation of the once outrageously popular five and dime stores so that has me thinking if you ever see a specific type of promotion or sale that seems especially appealing or effective it might be smart to open an entire store based on it because here's two examples where that has worked exceptionally well but anyway that's what he did they took one of their existing stores in Springfield Kentucky and turned it into the first-ever Dollar General Store based on the gimmick of everything being less than a dollar it was an instant success over the next 10 years they spread all across the southeast by opening 250 more of them by 1968 they had grown pretty large and the Dollar General Store had become almost their entire business so they had a public stock offering and when they did it they saw it fit to change the name of the entire company to Dollar General that's how it all came about but the 250 stores across the southeast is not quite the 15,000 locations in 44 states that they have today from this point up until the 1990s most of their growth can be attributed to acquisitions it's pretty simple they had a concept proven to be successful and really just needed to get more of them out there they strategically expanded into one new market at a time by acquiring a somewhat similar local chain of stores notably in 1977 they spent 8.2 million dollars on this chain of 88 stores in Arkansas called United dollar stores 1983 they spent 50 million on a 280 store chain in st. Louis called PN Hirsch in 1985 it was another 200 stores from a florida-based chain called Eagle discount for 30 million those three acquisitions alone accounted for almost half of their 13 hundred stores at this time but those three acquisitions cost them almost a hundred million dollars by the end of the 1980s the company concluded that they were spending too much money the investors were losing faith in the plan so they tapped the brakes a bit and started opening more of their own stores that shift was big for them because it gave them more control over where the new stores would be located during this time easily the biggest competition for just about any retailer were the large discount stores and namely Kmart in Walmart they were exploding him but consider they were placing their stores in more populated areas ideally ones with more money it makes perfect sense I mean why not just place your stores where there's a lot of people that have a lot of money to spend and I'll tell you why not because everyone else was doing it I mean let's face it Dollar General has never been a classy upper scale store it's meant for people with lower incomes or for people with limited options this is when they really started to lay into that identity their approach was to open stores anywhere that other major retailers were avoiding this meant either opening stores in areas with low populations or low ink and that strategy has been fantastic for them even today they identify their core customers as low and fixed income households often underserved by other retailers and they disclosed that 75% of their stores are located in towns of 20,000 or fewer people so when answering why they're successful I'd say this is a big part of it while everyone else is going for the big fish Dollar General is doing just fine catching all the tiny ones that no one else wanted no I don't want to drift off subject or create an entire political debate but the shrinking middle class we've all heard about this it's said to be happening and bringing more people into the lower class which is creating more customers for Dollar General the CEO himself has said the economy is continuing to create more of our core customer which by the way is people with household incomes below $40,000 a year he has also said that they've been able to place new stores in areas that were not quite poor enough a few years earlier in short their customer base is growing and that's been good for sales also consider how much it costs to open a new store in a poor neighborhood compared to a rich one or in a small town compared to a big city these are low rent areas which makes it easier for them to open these new locations in 2018 they opened an average of two point three locations per day pushing them past that 15,000 mark all of which are in the United States which is actually three times more than Walmart has in the United States the big difference of course being the store size Walmart has them beat in total square footage since each one averages over a hundred thousand where's Dollar General is only seventy four hundred my point is with all these factors imagine just how much cheaper it is to open a Dollar General in a small town compared to a Walmart in a bigger city I should point out these are also very basic stores for lack of a better term Dollar General is sort of a place you're forced to shop at people typically go there either because they're cheaper or closer than other stores that compete mostly through convenience and price which means they don't have to impress you these stores could be worn out disorganized poor customer service anything you could think of that leads to a poor customer experienced and it doesn't even matter that much it all helps explain how they've been able to grow so large and keep their costs down and theoretically pass the savings on to the customer that leads me to another thing I'd like to mention it's called Dollar General it's considered to be a dollar store the first one ever as a matter of fact but they no longer sell everything for a dollar this is where it starts to get a little manipulative I like to think of this as the opposite of Costco I've made an entire video about it but Costco sells large quantities at small margins where's Dollar General sells small quantities at large margins their gross profit margin is over 30% which is higher than Walmart or Target or most other popular retailers like I said it's kind of manipulating what the customer sees as being cheap many of their prices are lower than other stores but in many cases it's just because they're selling them in lower quantities and that's the case you're usually paying more per unit and to add another layer 77 percent of their sales come from consumables which is your traditional grocery items food and soap and things like that but they identify those as their lowest margin sales so everything that doesn't fall into that category likely has a margin well over that 30% to summarize Dollar General is quite possibly one of the biggest success stories in retail over the past few decades and a big part of that is targeting customers that others ignore for them it's all about low income and low population areas that's been their plan from the beginning but they've really committed to it over the past 30 years or so and look how well it's worked some of the compliments to that plan are a growing customer base low rents due to opening small locations in undesirable areas low costs overall due to targeting customers that are forced to shop there and some of the highest margins in the industry partially due to selling in small quantities combine it all together and it can help explain almost three decades of non-stop growth and success let me know in the comments what do you think of these graphs because you don't see something like this often but I guess more importantly what do you think of my reasons explaining them obviously it's not a complete list but I touched on factors that I found to be most relevant in explaining their success you have any more that you think are significant please I encourage you to talk about them you know I kind of want to test this out they say 75% of them are located in small towns with under 20,000 people I should ask is that the case for you is there one near you and if so do you live in a small town I'm curious if these results reflect that 75% also before you start with the comments I know Dollar Tree Family Dollar there's a few of these dollar store chains that tend to be grouped together but I'd say most of what I talked about here is unique to Dollar General it's kind of a separate case that I thought deserved its own video so let me know if you want me to talk about the others either on their own or in a comparison video what do you think I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 724,200

Rating: 4.9313931 out of 5

Keywords: Dollar General, Retail, Store, Dollar Store, Business

Id: pspF4a9YQ6M

Length: 12min 3sec (723 seconds)

Published: Wed Nov 20 2019