Why Dollar General thinks coronavirus can help business
On a day of market turmoil thanks to growing anxiety about the impact of the coronavirus on the U.S. economy, Dollar General says the push for social distancing during the outbreak will likely boost its business.
The discount chain, with 16,278 stores in rural and suburban America, on Thursday reported its 30th straight year of comparable sales growth, and gave a bullish revenue forecast for 2020. Dollar General has added about 1,000 stores annually over the last few years. The company, which took in revenue of $27.8 billion in 2019, expects net sales growth of 7.5% to 8% in 2020, as well as an increase of 2.5% to 3% for comparable sales, which exclude new or recently closed stores.
Meanwhile, in afternoon trading, the S&P 500 was down 8% on fears of what the coronavirus, and the efforts to contain it, would do to consumer spending.
But Dollar General executives told Wall Street that the proximity of its small stores (typically 7,000-square-feet in size) to many shoppers, would be attractive for those looking to drive less and practice social distancing by avoiding large, crowded stores. CEO Todd Vasos, who expressed sympathy for people grappling with the outbreak, said that 75% of Americans live within seven miles of a Dollar General. The chain’s secret sauce has long been to situate small stores close to shoppers and stock the shelves with a wide array of products in a limited number of sizes, all at very low prices.
Some 57% of Dollar General’s clientele live in households with income of less than $49,900, according to 2019 data from research firm Kantar, and 30% get by on less than $25,000.
“We’re a small box shop close to your home,” Vasos said. “They just don’t want to travel to the big box [stores],” he added, predicting that “we’ll get our fair share” of spending from such customers during this crisis and beyond if the economy slows.
If that plays out, it would be a repeat of consumers’ reactions both during and right after 2008’s Great Recession when people sought out the very low prices of dollar stores, and shopped closer to home to save on gas. Dollar General was one of that period’s big winners, stealing market share from Walmart. While just about doubling its store count in the last decade, Dollar General has held on to much of those market share gains, remaining one of the fastest growing retailers.
Executives downplayed concerns about remaining fully stocked in a time of strain on its supply chain. Vasos allowed that there could be delays on some items originating in China but said Dollar General has a diversified set of vendors that mitigate the issue.
Despite all the uncertainty still swirling around the economy, Dollar General’s finance chief John Garratt said he did not expect the pandemic to have a “material impact on our business or fiscal 2020 financial results.” Competitors such as Walmart and Target have not quantified the potential impact of their business but allowed there is likely to be one.
Still, many retailers like Dollar General that sell staples and essentials have seen an increase in business this month with consumers buying up cleaning products, food, and other essentials. Costco stores have been mobbed, and Target’s chief executive Brian Cornell said last week there had been some “aggressive shopping” at some of his stores.
Still, Garratt cautioned analysts against seeing too much of a boon in such visits to Dollar General, suggesting some of it is just sales being brought forward. “Like most stock-ups, there’s always a backside to this,” he said.
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