Dollar General Case Study Essay

sawhorse ordinary is a retailing come with, oddly extreme value oriented.Since its establishment in 1955, dollar everyday has drastically grown. In 10 years, from 1955 to 1965, the fol dispirited grew to 255 rememberings with one-year gross revenue of $25.8 million. Today, long horse usual owns 6,300 break ins in 27 states, with 2002 annual sales of $6.1 billion and more than 54,000 employees. This addition was extremely fast in the 1990s. The crook of stores grew so from 1,461 in 1991 up to 6,113 in 2002.Since the beginning, dollar sign General takes advantage of a niche by setting up profitable small stores delivering convenience and value. All the dollar markGenerals Strategy is based on a node-driven dispersion of consumable basics.Financial situation of the ships company remains sincerely fulfil in spite of shargonholders lawsuits due to restatement of its earnings hardly a(prenominal) years ago. receipts growth was equal to 12.6% in 2003 for a total amoun t of $7.24 billion. Its earn income was the largest of the sector with $319.9 million. In the resembling time, and over the last three years, the community has reduced its long-term debt by $448 million.Such a success rump be explained by a really good homeing of the caller-out through its external environment and among its direct competitors. dollar bill general knows in truth well how to manage the exploited niche and its opportunities. The main strength of long horse General remains its top executive to constantly open novelfound stores, sagacious that the key success holds in the proximity of small stores delivering convenience and value. It is in fact a kind of necessary comparative advantage on this commercialize.The new CEO, David Perdue has got no experience of retail industry. He has to choose in which direction Dollar General provide go. He has to go on the expansion of the fraternity but with the arrival of new and very regnant competitors such as Wall-M art or Kmart.1. BackgroundDollar General is a tax write-off retailer of general merchandise, with around 6,300 discount stores in over 27 states in 2003. The community, which headquarters argon based in Goodlettsville, Tennessee engages in the provision of general merchandise at low prices, serving customers in Midwestern and Southeastern US.The confederacy offers its customers an classification of consumable basic merchandise, which includes wellness and beauty aids, packaged food products, cleaning supplies, hardware, stationery, household items and basic apparels. The majority of its items are priced at $1. The connection employed around54,000 employees. Their buying staffs transact low purchase prices from suppliers. It purchases its merchandise from various major suppliers. To maintain noble in stock levels of core merchandise, the lodge usually limits its stock- guardianship units per store.TimelineIn 1939, with lone(prenominal) a third grade education, J.L. Turner formed his own company in Scottsville, Kentucky, with his son, Cal.In 1955, Cal Turner and his son Cal Turner Jr. undecided the first Dollar General store in Springfield, Kentucky.In 1965, they operated in 255 stores and generated $25.8 million of sales.In 1976, Dollar General exceeds annual sales of $ coulomb million for the first time.At the beginning of the 1990s, the keep companys annual sales kept increasing and began to expand store sizes from 5,000 unbent feet to 6,800 square feet.In 2000, Dollar Generals corporate employees bring to Goodlettsville, Tennessee. The move in any case saw the most aggressive store reset in the Companys history, in which, more than 5,000 stores were set.In 2001, the Company began oblation perishable products. This program included a selection of dairy products, meats, set foods and ice cream, and was expanded from 411 stores at the end of 2001 to 1,367 stores at the end of 2002.In February 2003, 7 scattering centres which served around 6,1 92 stores in 27 states and generated in finalt sales $6.1 millions.2. Dollar General diagnosisa. Financial analysis scratch SalesIncreases in net sales resulted largely from 587 net new stores and a same-store sales affix of 4.0% in 2003 compared to 2002, and 573 net new stores and a same-store sales increase of 5.7% in 2002 compared to 2001. The Companys merchandising dodge in late years has been to place a great focus on faster-turning consumable products and to give less prominence to s sink-turning home products and clothing. The Company believes that this strategy has enab take it to recrudesce serve its customers while improving its inventory turns. As a result of this strategy, over the ultimo three years the extremely consumable category has become a greater percentage of the Companys overall sales ad premixture while the percentages of the home products, seasonal worker product and basic clothing categories construct declined. In 2002 and 2003, the mix was as f ollows (in percent of sales)2003 2002Highly Consumable 63% 60.2%Seasonal Products 15% 16.3% syndicate Products 12% 13.3%Basic Clothing 10% 10.2%The Companys same-store sales increase in 2003 over 2002 of 4.0%, or $228.3 million, was due to a number of factors, including but non limited to increase sales of candy and snacks, health and beauty aids items, pet supplies and perishable products primarily due to the increase in the number of stores with coolers (in 2002, 1,400 stores had coolers).Gross ProfitThe gross profit increased by more than 200 millions dollar in 2003 as compared with 2002 primarily due to the followingThe Company made progress in decrease the shrink at problem stores during 2003. Some of the actions taken by the Company to combat shrink beginning in 2002 included the installation and the effectuation of software that improve the inventory management. They also invest in former(a)s technologies which garter purchasing and store allocation decisions.Current Fina ncial ConditionThe Company has also to deal with its accounting issues due to the uncertainty about their past financial reports. The Company is still under the investigation of the US Securities and transform Commission and has to provide solid proof for every financial figures promulgated and for every transactions done.b. Strengths and weaknesses analysisSTRENGTHS WEAKNESSESOne of the booster cable dollar store retailers in the USImproved financial performanceStores located in small communitiesInvested in better distribution facilities S tone issuesMerchandise mix problemsLost of competitive advantageStrengthsDollar General is one of the leading dollar store retailers in the US. The Company enjoys a strong market position within this particular segment of the retail market. It has a low cost operating structure and a relatively limited assortment of products offered. The Companys strong market position allow serving to enhance Dollar Generals brand awareness. Dollar General i s well known Company which does non need to communicate on their strategy because of their strong identity, they receive low communication cost. This will in turn make it easier for the Company to get in new custom. Their strong store experience allows the ability to develop their strategy with a high experience experience. It facilitates their expansion strategy.The Company improved its financial performance and increased in revenue in 2003 up to $6.1 billion after a 15% increase in 2002. Net income also grew by 27,7% in 2003 attain $264,946.Stores are located in small communities, meaning it does not have to compete with the larger retail outlets for custom.Moreover they have made better distribution investments which allow them to have better facilities in their distribution and lower be.WeaknessesGrowing fast, involved learning experiences, duplicating models, and creating format. It has been a force during a few years. Nowadays, Dollar General has to adapt its stores to the demand, and follow the market growth.Merchandise mix problems Dollar General has also experienced merchandise mix problems in recent years. These merchandise mix problems have led to the Companys inventories becoming obsolete. This has forced Dollar General to write down nearly of the value of its inventories.The concept of dollar store has been a success, and many competitors are on the general store traces. Their concept has been copied, so their competitive advantage and their strategy are no more as efficient as in thebeginning. Competitors have also learnt form the Companys experience.3. outside(a) Analysisa. CompetitorsAccording to the case the two major competitors of Dollar General Corporation areFamily dollarDollar treeThese two companies have adopted the same strategy than Dollar General. Their expansion has been fast, they have the same customers, and the same core seam. Although they have many customers such as The Talbots, Inc.Freds, 7-Eleven, Sears Roebuck, Wal Mart, 99 Cents Only Stores, Kmart or Target.COMPETITOR COMPARISON (2002)The following chart shows the differences betwixt those three companies.Comparison criteria 2 1 0 1 2Industrial Equipment (number of stores, distributioncenter)Wide of product rangeproductivenessProfitabilityPricingImagePenetration rateRevenue growth over the past yearDollar TreeFamily DollarDollar GeneralFollowing this graph study it seems Dollar General generally remains the most impressive competitors of the sector. DG remains the best in term of image, penetration rate (even if it is only present in 27 states whereas the others are present in about 40 states), financial position (they have the best Net Income 265 millions dollars, Dollar Tree 155 millions and Family Dollar 217 millions) and in term of selling force thanks to its still greater number of stores (6,113 stores for 54,000 employees, Dollar Tree 2,263 stores for less than 9,600 employees and Family Dollar 4,616 stores for less than 22,000 empl oyees). in 2004, Dollar Tree has got 9,600 employees and Family Dollar 22,000 employees according to Yahoo.com so we can call back that it was inferior in 2002Nevertheless DG has to take care not to lose its leadership concerning the wide of product range proposed. And even if the calculate household income is not exactly the same than Dollar Tree, DG has also to pay attention to the politic pricing implemented by Dollar Tree, which is in fact the best of the sector thanks to products price at $1 or less than $1. however generally, DG remains really well positioned among its competitors.b. Opportunities and threats analysisOPPORTUNITIES THREATSNew distribution centersBusiness less suggestible to slowdown in consumer spendingStores expansion in new statessizing of the stores New competitionPeople qualificationDependency to suppliersOpportunitiesThe Company is reliant upon the smooth functioning of its distribution network and upon the capacity of its distribution centers. The Co mpany relies on the ability to replenish depleted inventory through deliveries to its distribution centers from suppliers. New distribution centers are expected in the end 2004 or in 2005 in collection to support continued growth.The dollar business is less susceptible to a slowdown in consumer spending compared with other retail operations because over a third of its stock costs $1 or less. This will mean that Dollar Generals business will not be affected as very much as other high cost and high margin led retail operations, as in times of economic distress consumers will look to save money by purchasing goods that are sensed to offer better value from retailers such as Dollar General. So they have the hazard to gain market share if the economy slowdown.The stores are located in only 27 states so they have the possibility to open new stores and to expand into additional states. It will depend on factors that are beyond the Companys control such as the ability to negotiate favou rable lease terms the ability to take aim and train new personnel,especially store managers the ability to identify customer demand in different geographic areas.The size of the stores is from 5,000 to 6,800 square feet, whereas Family Dollar stores size is from 7,500 to 9,500. It shows that DG can extend the size of their stores in order to grow their sales.ThreatsThe discount retail merchandise business is subject to waste capacity and some of the Companys competitors are much larger and have substantially greater resources than the Company. The competition for customers has intensified in recent years as larger competitors, such as Wal-Mart, have locomote into the Companys geographic markets. The Company remains vulnerable to the selling power and high level of consumer recognition of these major national discount chains, and to the risk that these chains or others could venture into the dollar store industry in a significant way.The Companys success depends to a significant extent upon the abilities of its senior management aggroup and the performance of its employees. The acquittance of services of key members of the Companys senior management team or of certain other key employees could negatively impact the Companys business. In addition, future performance will depend upon the Companys ability to attract, retain and motivate qualified employees to keep pace with its expansion schedule.The Companys business is dependent on its ability to achieve attractive pricing and other terms from its suppliers. The Company believes that keeping good relations with its suppliers is generally a good way to obtain attractive pricing. If the Company fails to maintain good relations with its suppliers, it may not be able to obtain attractive pricing with the consequence that its net sales or profit margins would be reduced.4. Problem identificationDollar Generals strategy is based on low prices and convenience. That is what differentiates this Company from anothe r. They had the ability for delivering value to their customers and for placing many stores where other big-box retailers will not is well-deserved.The new CEO, David Perdue, which has no experience in retail industry, has to go on the expansion. But he has to face the problem of a harder competition. Indeed, the success of dollar stores attract big firm such as Wall-Mart and Kmart on this market. So where will he decide to open new stores? He will in all probability has to expand new stores in new states but he exponent not find a location without competitors.