Best Practice: Shrinking Brick-and-Mortars and DGX

Dan McCombie is a Research Associate at Larisa Ortiz Associates

For our recent blog post on 2018 retail trends, number seven on our list was the phenomenon of shrinking retail footprints and the opportunities they provide for both retailers and for downtowns. I thought it helpful to highlight one such retailer, perhaps an unexpected one, who has adopted this strategy. Who is it?

Dollar General. (Really?)

Really. (Tell me more!)

Ok! 

In January of 2017, Dollar General announced the opening of its new urban format store entitled Dollar General Express (or DGX) in Nashville Tennessee, just a ways south of the company's base of operations in Goodlettsville. It differed largely from existing stores in that it occupied a paltry 3,400 SF compared to traditional store sizes of 7,300 SF, presenting a small, clean, modern and sleek aesthetic. Its usual 10,000-12,000 SKUs were traded in for a more limited assortment of grocery, pet supply, snacks, paper products, and home cleaning supplies, but complemented with a coffee bar, refrigerated grab-n-go food offerings, an expanded health and beauty section, and a “carefully-edited assortment of home, electronics and seasonal offerings.”[1]

What explained the reasoning behind the new DGX? Dollar General representatives explained what we all already know, that the retail business is changing and shopping is increasingly moving online. The new DGX was felt to be a way to anchor their brand more in their brick-and-mortars by reaching a new audience of urban and Millennial-aged shoppers—thus the reason for choosing Nashville as their first location. The Nashville metropolitan area is expected to reach a population of 2M by the year 2020, signaling a trend of urbanization that is not likely to abate anytime soon. A quick look in ESRI Business Analyst found that within a fifteen minute walk shed of the store’s location, over 40 percent of the population was classified in the “Dorms to Diplomas” tapestry segment, an inherently budget-conscious demographic of college students with low rates of car ownership. An additional 38 percent of residents were characterized as “Metro Renters,” college-educated Millennial 30-somethings with a preference for single household urban living. Dollar General seems to be gambling big on these cohorts by opening its second DGX location in Raleigh, North Carolina, within the famed Research Triangle region.

What DGX is seeking to do goes beyond what was discussed in our 2018 trends blog post, where we pointed to stores like City Target and Neighborhood Nordstrom in the general merchandise category. These retailers are shrinking store sizes and reducing inventories in order to focus on more experiential components—in essence responding to a market correction that saw an oversupply in retail space across the country. But Dollar General is really continuing a retail strategy that has historically served them well. They have always been a small format chain compared to their big-box competitors. With a smaller footprint, they’ve been able to locate closer to budget-minded shoppers, competing on convenience and access, such that they claim they currently serve 75% of the US population. This strategy has fueled their consistent growth with Q4 2017 sales rising at the fastest pace seen in the past three years.  

What is different is that the Dollar General site selection strategy has grown from a focus solely on the rural customer to include the urban. In short, Dollar General has not changed their value proposition, which is providing affordable and accessible convenience goods. What they have changed is their focus on primarily rural demographics to now include a growing urban demographic. This is not to say they’ve been absent from urban areas until now, but the new DGX stores can be shoehorned into smaller spaces in denser environments in a way they haven’t been able to prior. That has tremendous implications for addressing vacant spaces, improving tenant mix, and creating engaging downtown environments.     

Source: dollargeneral.com

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[1] https://newscenter.dollargeneral.com/our-story/blog-posts/dollar-general-unveils-new-dgx-concept.htm