dollar general

Carol Spieckerman's Right Brain On: One-Dimensional Discourse on Dollar Stores

In her latest contribution as a Retail Wire panelist, Carol comments on what she sees as a one-dimensional discourse around dollar stores and other price-format retailers going online. It will be a game-changer (just not the way most might think).

Here's what she had to say...The conversation about price format retailers going online is far too one-dimensional. The game-changer isn't that these retailers may realize significant online sales on items they currently carry in store and with their loyalist shoppers. If those were the only possibilities, who would call it a game-changer?

The word "scale" keeps comes up in retailer press releases and investor calls for a reason. The new standard for scale isn't thousands of stores or millions of online hits -- it's both. Dollar stores may just be getting started online but they are years ahead in establishing brick and mortar scale. The former is relatively easy to ramp up by comparison. Thousands of highly-efficient, well-located small formats facilitating site-to-store pick-up for what could evolve into endless aisle assortments -- perhaps even from third party sellers? Sounds a lot like what everyone else is trying to do -- except they are a few thousand stores behind.

Read the rest of the discussion

Retailers' Inflation Improvisation, Part II: Theory of Relativity

The following is Part Two of my two-part series on how retailers are waking up to inflationary realities ... and what they are leaving out.

Rising fuel and raw materials prices are inescapable, escalating realities that have predictably become unavoidable topics in recent retailer financial calls, conference presentations, and interviews. Despite retailers’ attempts at articulating short-term fixes, I see several market dynamics converging that promise to compromise their well-crafted stories (read Part I)

Convenience: Just Another Word for Nothing Left to Lose?

When asked about their inflationary coping strategies, Dollar General, Kroger, and Walgreens have all cited convenience as an arrow in their quivers, even as their convenience claims promise to be compromised by the competitive dynamics I mentioned in Part I. Kroger CEO David Dillon has deduced that, since shoppers are making fewer trips overall but Kroger’s shopper counts are on the uptick, “Kroger is convenient (in) every one of those trips they make.” Walgreens CFO, Wade Miquelon, has stated that “while we do see higher fuel (costs)...we also get some benefit offset because we are very convenient.” Dollar General’s CEO, Rick Dreiling went so far as to cite convenience and price integrity as the “two things that you really need to be tracking” in an inflationary environment. I’ve already addressed the precariousness of price integrity. Isn’t “convenience” a similarly shaky pillar? Retailers should be asking themselves what’s next, when everyone is convenient and close proximity makes price discrepancies even more vivid.

Theory of Relativity

Some retailers are counting on context. Kathy Tesija, Target’s EVP of Merchandising, acknowledged that Target has already executed selective “low- to mid-single-digit” price increases for spring apparel and that fall will mostly likely bring increases “into the double digits” in both apparel and home, and for a larger portion of the overall assortment than in spring. She noted that they also saw their competitors taking retail prices up, stating that “the market is moving along with the cost increases.” Carol Meyrowitz, TJX’s CEO, has said that the company is focusing on delivering “relative value.” I guess the reasoning is that if you’re going at the rate of the traffic around you, you can’t really be speeding.

Target and TJX’s previously-advantageous positioning may actually sink them in this rising tide. Both are positioned as better alternatives to discounters on the low end and value alternatives to specialty retailers and department stores on the high end, which makes for a whole lot of competitors. And as Target ramps up their grocery and pharmacy operations, they have to throw grocery stores and drug retailers into their “comparatively competitive” strategy, and hope that most of them will cave and ratchet up retails at roughly the same time. Sounds like a bit of a gambit to me.

Glomming Onto Globetrotting

Sourcing strategy adjustments have figured prominently among apparel and home retailers, for whom ongoing unanticipated increases in cotton prices have been a major headache. This has also been the case for vertical retailers and other self-sourcers, who have been hit with another whammy through rising labor costs in their go-to country, China. Glenn Murphy, CEO of beleaguered frock-maker Gap, recently revealed that his company has moved to alternative countries over the past 18 to 24 months, cultivating relationships in Vietnam, Cambodia, India, Bangladesh and Sri Lanka. Family Dollar’s CEO, Howard Levine, has mentioned increasing private brand penetration and global sourcing as ways that Family Dollar intends to “mitigate some of this pressure” and has stated that they are on track to increase direct sourcing by 20%.

Dollar General’s Dreiling has stated that while the company was very China-centric three years ago, they now have an office in India and are exploring South Africa and Vietnam. As noted in my coverage of a recent presentation at the International Licensing Expo by Rick Darling, president of sourcing giant Li & Fung’s subsidiary, LF USA , sourcing shifts will probably only provide short-lived advantages. Not only is everyone seeking the same alternatives, but just as retailers are adjusting prices based on competitive dynamics, alternative countries of origin will eventually adjust upward to meet the benchmark “China price.” 

Private Brand No Panacea

Private brands can definitely enhance profitability for retailers such as Family Dollar, who until now haven’t taken full advantage, but once the desired penetration threshold has been hit, they will be up against comps in subsequent years. Also, although private and proprietary brands may blur the lines for J.C. Penney, Macy’s, Kohl’s and others who trade heavily in embellished soft lines, retailers who rely on single-tier private brands with still-generic packaging make it easy for any savvy shopper to compare among competitors (Target's multi-tier, upscale private brand programs provide a bit of insulation by comparison). In fact, if Dollar General’s Clover Valley, Family Dollar’s Family Gourmet, and Walmart’s Great Value aren’t comparable to one another as the small format, consumables-focused crowds begin to form, someone will have some ‘splainin to do.

Will retailers stick to their short-term, inflationary stories as the sands continue to shift? If so, I see current contradictions giving way to future retractions.

Retail Wire's BrainTrust Query: The Squeeze on Dollar Stores

Retail Wire published the following excerpt of our article, Retailers' Inflation Improvisation Part I: Perilous Parity, on July 12, 2011.  The article generated a terrific discussion among Retail Wire’s BrainTrust panelists and we’ve included those comments at the end of this post.

Both Walmart and Dollar General have recently made it clear that high-low price shenanigans are off the table and that building trust through price consistency is their highest value. In a presentation at last month's William Blair Growth Conference, Rick Dreiling, Dollar General's CEO, claimed that "price integrity is building loyalty" with its customers and that those customers "truly trust" the retailer's everyday low price positioning.

But dollar stores are facing new competition from big-boxers -- from Best Buy to J.C. Penney, Staples, Target and Walmart -- who are determined to downsize their way in by shoving small formats into previously unexplored urban and rural markets, many of which are already populated with the original small format specialists. At the same time, rising fuel and raw material prices are pressuring margins. Combining the inflationary dynamics with the encroachment by the big boxes, and dollar stores' inherently narrow wiggle-room on both price and physical space, dollar stores' sovereign reign over some urban and rural fiefdoms may be at risk. Yet they aren't betraying much vulnerability.

Dollar General's Mr. Dreiling, for instance, recently spoke of the company's "radical shift" to "proudly" selling national brands alongside private brands. However, the more Dollar General focuses on procuring the same national brands that Walmart and others carry, the more they will have to obsess over comparative value, especially since local price adjustments are standard operating procedure for both Target and Walmart.

Family Dollar's CEO, Howard Levine, noted in the company's Q3 2011 earnings call that "so far, our market and price checks are confirming that our competitiveness remains strong" and went on to say that Family Dollar is looking at the competitiveness of various markets and taking advantage of "higher pricing opportunities" in those that aren't as competitive. He added that Family Dollar is continuing "to learn more about these opportunities, particularly as we open up more and more stores in urban markets where that's a lever that we can pull to help the margin." In other words, Family Dollar is banking on localized pricing winning the day, even as others who have arguably had more practice at it head their way.

Dollar stores have a very defensible position as they are thousands of stores ahead of the interlopers, but the nagging exceptions (markets that the big boxers have taken a shine to) have the potential to upset their apple carts as everyone attempts to adjust pricing to increasingly complex local market dynamics. Throw in Walmart's Site-to-Store and Pick Up Today services, which have the potential to transform every Walmart Express location into an endless aisle delivery mechanism (the brands and products in the store may eventually represent only a fraction of the actual item transactions that occur in the store), and you have a multi-layered, localized moving target. So how will dollar stores be able to carry out a balancing act and live up to price consistency claims as others encroach and as the continuous upward crawl of commodity prices adds even more complexity to the picture?

BrainTrust Panel Comments

Three quick observations.

1.  The only big box that can mount a credible threat to dollar stores with small formats is Walmart. The other retailers mentioned might do OK with small formats, but it won't be Dollar General's sales they will be taking, it will be other local merchants.

2.  Dollar General is doing precisely the right thing by bringing in national brands that Walmart will be offering. They can't afford to let Walmart have the additional advantage of being the only low-price, local store that is offering "the good stuff."

3.  In general, dollar store format operating costs remain below those of big box retailers. And the purchasing power of 8,000 stores is leverageable no matter how small those stores are. Even Walmart will have to go a long way to beat the typical dollar store net cost structure.

Small format Walmarts are indeed a threat to dollar stores in general and to lesser chains and independents in particular. DG and FD can stand up to the challenge -- but not without taking some hits along the way.

Ben Ball, Senior Vice President, Dechert-Hampe

Every retailer is always subjected to being vulnerable when some new, changing or more powerful force enters their environment. In the case of today's dollar stores, their vulnerability lies in big box stores with reliable supply chains and strong balance sheets duplicating the dollar stores format in urban and rural areas.

Gene Hoffman, President/CEO, Corporate Strategies International

Read more comments from BrainTrust panelists