Case Study: Dollar General

 
 
By Kim S. Nash  |  Posted 2004-07-20 Email Print this article Print
 
 
 
 
 
 
 

Dollar General opens two new stores every day. There's a well-honed choreography of human muscle and precision logistics that sets up each new outlet in little more than a week. Read how less technology is more for this profitable giant of small-ticket it

Todays dollar store is a five-and-dime shop, adjusted for inflation. Its what Sam Walton envisioned when he created Wal-Mart in 1962: a neighborhood store selling affordable necessities to people who cant pay top prices for soap and toilet tissue.

Now that Wal-Mart pushes wide-screen TVs and vacation packages along with its low-priced detergent, theres room underneath for chains devoted only to small-ticket goods. Not everything at a dollar store costs just a buck. But the combination of $1 shampoo, $3 bug killer and $7 area rugs is big business. Shoppers spent $16.6 billion last year at the top five dollar stores, up from $12.2 billion in 2002.

Dollar General is the king of that market, generating $6.9 billion a year in sales in 29 states from 6,930 stores.

Thats more outlets than even Wal-Mart. Check again a week from now, and 14 more will have been born. The company is adding 695 stores this year, on top of 1,300 launched in the last two years.

Successfully opening two stores a day is more than a matter of precision logistics: Its crucial to Dollar Generals bottom-line results. Each day it can slice off the opening process means $2,800 in added revenue and $124 in profit at a typical store. Where the company 10 years ago took weeks to launch a new store, it now has the process down to eight days, or fewer.

And each additional day of operation is another day added to Dollar Generals surprising success at out-retailing Wal-Mart itself. Wal-Mart last year earned 3.5 cents on each dollar of its $256.3 billion in sales. But Dollar General made 4.3 cents on each dollar of sales, making it 12 percent more profitable than the worlds biggest retailer.

Store-level frugality "is where their profit margin comes from," says Ben Ball, an analyst at Dechert-Hampe & Co., a consumer products consulting firm in Northbrook, Ill. "The technology strategy reflects that to a T."

Sure, the headquarters office in Goodlettsville, Tenn., offers on-site day care and dry cleaning. Yes, its seven distribution centers sport radio-frequency scanners and a raft of warehouse management and logistics software.

Check out eWEEK.coms Enterprise Applications Center at http://enterpriseapps.eweek.com for the latest news, reviews and analysis about productivity and business solutions. But the stores are spare. There is no network. No e-mail. No local servers keeping track of inventory. Aside from word of mouth, the only way information on each days sales gets back to headquarters is when headquarters asks for it. A Hewlett-Packard Superdome mainframe computer in Goodlettsville polls each stores IBM cash registers via satellite network every night, recording how many of which items were sold and at what price.

The company spends less on technology per employee every year—about $3,000—than any of its dollar-store competitors, according to Alinean, a technology measurement firm in Orlando, Fla.

That may keep store operating costs low, but there are consequences. About 3 percent of sales disappeared last year due to theft and loss. Items are bar coded, but store employees dont have readers or software to verify shipments and check in products as they hoist hundreds of cartons off delivery trucks every week. There is no store-level inventory system.

"You have to know when to apply I.T. at stores, how to use it there to further your goals," says Greg Buzek, an analyst at IHL Consulting Group, a retail technology consultancy in Franklin, Tenn. "Im not sure Dollar General knows that yet. Theyre too focused on growing."

So critical is speed-to-market for Dollar General that company officials decline to talk about the store-opening process. They consider it a homemade competitive weapon against Dollar Tree, Freds, 99 Cents Only and especially Family Dollar, which, at $5 billion in sales and 5,200 stores, is the next-biggest chain.

Yet as Dollar General marches to 7,400 stores by the end of the year, Baseline uncovered the companys setup method and found it to be equal parts information technology, paper pushing and strong biceps.

If you need a blueprint for profiting quickly from building new stores—and backing them up with lean systems—you could do worse than imitate Dollar General. But you may not want to mimic its controls.

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Senior Writer
Kim_Nash@ziffdavisenterprise.com
Kim has covered the business of technology for 14 years, doing investigative work and writing about legal issues in the industry, including Microsoft Corp.'s antitrust trial. She has won numerous awards and has a B.S. degree in journalism from Boston University.
 
 
 
 
 
 
 

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