Dollar General: Heavy on Organization, Light on Systems

Dollar General Corporation, headquartered in Goodlettsville, Tennessee, is an aggressive competitor in the deep discount retail industry, fighting for position with other stores such as Family Dollar, Fred's, 99 Cents Only tores, and Dollar Tree, as well as with retailers such as !al"#art, $mart, C% , and &ite 'id( Dollar General stores offer a product line of general merchandise that includes housewares and cleaning supplies, health and )eauty aids, clothing, pac*aged food, stationery, seasonal offerings, and other household consuma)les( The company has )een operating since +9,9( Dollar General's most recent annual sales figures total -.(/ )illion, placing the chain at the top of the dollar store category of discount retailers( omewhat surprisingly, the chain is not achieving its success )y following the e0ample set )y other successful discount retailers( !hereas competitors such as 99 Cents Only tores consider middle" and high"income customers to )e *ey contri)utors to their profits, Dollar General caters specifically to customers with low, middle, and fi0ed incomes( 'ccording to data from 'C 1ielsen, in 2334 5.6 of Dollar General's customers earned less than -,3,333 per year, and 2/6 earned less than -23,333( Dollar General has *ept away from the )ig )o0 supercenter store model used )y !al"#art and $mart( This type of store is often located on the outs*irts of cities or outside of particular towns to draw customers from a )road area( !hen placing new stores, Dollar General prefers to locate them within communities, often targeting municipalities that are home to fewer than 23,333 residents( 7n early 233/, over 5,433 Dollar General stores were in such communities( The company )elieves that filling the role of neigh)orhood store is a )ig part of its success( 's such, stores follow a fi0ed, even"dollar pricing schedule with a)out one"third of all merchandise priced at -+ or lower( The ma0imum price for a Dollar General product is generally around -,4( !hen it comes to total revenue, the dollar store cannot really *eep up with the superstore( !al" #art's most recent annual sales figures were over -,+4 )illion( 8owever, where Dollar General can ma*e its mar* is in getting the )iggest )ang for its )uc*( #any supermar*ets struggle to *eep up with !al"#art )ecause the retail giant earns a higher percentage on each dollar of sales 9,(4 cents in recent years: than most retailers are a)le to achieve( Dollar General has surpassed !al" #art's )enchmar* )y earning 5(, cents for every dollar of sales( 8ow Dollar General accomplishes this is )y rapidly opening stores and running each store at the lowest operating cost possi)le( 's of 1ovem)er 233/, Dollar General operated .,2;/ stores with /5,433 full" and part"time employees in ,5 states, with ;,5 new store openings in 2334 alone( ince +999, when there were ,,/.; stores, the chain has dou)led in si<e( .33 new stores were planned for 233/( For every day that a new store is open, the company, on average, can e0pect to add -2,.33 in sales and -+25 in profit( 'cross a large scale, these num)ers ma*e quite a difference in the *ey columns of a profit and loss statement at the end of a year( To ta*e full advantage of this strategy, Dollar General has developed a system for opening new stores that whittles the procedure down to a scant eight days( Dollar General views this system as so vital to its )usiness that it protects the details of the procedure in the same way that Coca"Cola protects the formula for its leading soft drin*( 8owever, Baseline Magazine has )een a)le to +

reveal the )asics of the typical Dollar General store opening, as well as how the operation fits in with the manner in which the store is run after opening( 7n )oth cases, a strict )udget influences every step from hiring to implementing information systems( The average Dollar General retail store occupies /,.33 square feet of space( The company views leasing space as the most favora)le financial practice( The ma=ority of stores are placed in either shopping centers 9426: or freestanding )uildings 95/6:, with a handful housed in ur)an structures 926:( The opening of a new store is a chain reaction of events that )egins with a district or area manager hiring a construction team to perform any wor* necessary for the site to serve as a Dollar General store( This can include putting in new floors or creating access for delivery truc*s( 's this wor* )egins to wind down, the Goodlettsville office authori<es the purchase of point"of" sale 9>O : terminals from 7?#, with the stipulation that 7?# deliver the terminals on the second day of the upcoming store opening process( The >O purchase is the cue for Dollar General headquarters to notify its satellite lin* provider, pacenet, to schedule an installation at the new store( The satellite lin* connects the 7?# terminals to corporate headquarters so that the store can report sales data( pacenet is contracted to perform the installation on the fourth or fifth day of the store opening process( The opening of Dollar General stores falls under the direction of a store merchandiser, also *nown as a setter or an opener( etters coordinate the entire process as it happens and their responsi)ilities include everything from managing employees and installing the 7?# terminals to )uilding shelves and stoc*ing the shelves with products( They also test software and lin* up with headquarters( 7n a way, setters are li*e hired guns even though they wor* full"time for Dollar General( They spend most of their time on the road, traveling to different locations 9wherever they are needed: to open, close, and reorgani<e stores( Once on"site, setters wield significant power )ecause of their strong operational *nowledge( !or*ing )eneath the setter, for the time )eing, is a store manager who will stay on to run the location once the setup process is complete( ' few wee*s )efore a Dollar General store is scheduled to open, the store manager or the district manager solicits applicants to populate the crew for the eight"day opening effort( This crew normally consists of +3 to a ma0imum of 23 wor*ers( !or*ers who apply themselves well during this period receive consideration for full" or part"time employment when the store opens( 8owever, since the stores operate with a staff of no more than /, continued employment is hardly a guarantee( On the first day of setup, the crew unloads, constructs, and installs fi0tures for the store including shelves, counters, display rac*s, and refrigerators( The wor*ers also clean the floors and windows of the store( Dollar General outlines the proper positioning and placement for all fi0tures and products in a guide)oo* *nown as a planogram, or pog, for short( >ogs are e0tremely detailed, right down to instructing employees that products must )e positioned so that they are even with the front edge of a shelf( Corporate headquarters maintains close control over every aspect of operation( The company distri)utes hand)oo*s to employees that direct them how to communicate with each other and with customers( Over the ne0t several days, the setter receives and sets up the 7?# point"of"sale terminals, the crew sets up a stoc* room for surplus inventory, and a small manager's office is constructed( ?y the third day of the setup process, appro0imately 43 percent of the store's opening inventory 2

arrives( On the fourth or fifth day, a pacenet technician arrives to install the store's satellite dish on the roof and a satellite modem inside that connects to the 7?# terminals( pacenet is receiving -53 million over +3 years to fill this role for Dollar General( Once the technician esta)lishes a satellite lin* with corporate headquarters in Goodlettsville, corporate management )egins to transmit pricing data and product codes to the 7?# terminals( The store can )egin sending payroll information )ac* the other way( pacenet also tests the point"of"sale software, called Triversity, which the store will need to run to authori<e credit and de)it card payments and transmit sales data( #eanwhile, the crew continues to unpac* and shelve merchandise that has )een delivered )y the truc*load( 's the second half of the eight"day opening process )egins, the satellite networ* is up and running and the store manager can )egin to train the store's assistant manager and candidates for cashier =o)s on the 7?# cash register terminals( ?ar"code scanners that lay flat in the cashier counters are installed and connected to the registers( Training on the registers also provides the staff the opportunity to test the system, ensuring that products scan at the correct prices and that details a)out the store are properly entered in the fields of the sales application systems( The last few days of setup involve additional product stoc*ing, all the while ta*ing advantage of every inch of space that the store has( The setter uses a map that was constructed specifically for this store to fit the thousands of standard items that Dollar General offers into the store( 8e or she also sets up the space that has )een allotted to special or seasonal items( The final few days of the eight"day pro=ect are a flurry of activity as perisha)le goods arrive, the satellite networ* receives a final test, and the crew finally clears and mops the aisles to ma*e the store )right and clean( 7f they can get the store ready for )usiness in fewer than eight days, it could mean a )onus for the setter( Once a Dollar General store is open for )usiness, the use of information systems in the stores is rather thin( ystems are used to *eep costs down and for very little else( 'ccording to 'linean, an Orlando, Florida, technology measurement firm, Dollar General spends less on technology per employee 9-,,333 annually: than any of its dollar"store competitors( Dollar General does use advanced satellite technology to communicate with headquarters, )ut it was chosen )ecause dial"up and high"speed connections were unrelia)le in some areas and stores were not always a)le to complete their nightly sales reports( 8owever, individual Dollar General stores do not use networ*s to facilitate operations( The 7?# terminals include e"mail features, )ut the stores do not use them, relying on a private voice"mail system for communication instead( #anagers, )oth during setup and operation, use paper on clip)oards for trac*ing cash deposit logs, employee contact information, and the arrival of goods into the stores( @sing handheld computeri<ed devices for this purpose would add to the company's technology )udget( 7ndividual Dollar General stores have no automated method for *eeping trac* of their own inventory( #anagers *now appro0imately how many cases of a particular product they're supposed to receive when a delivery truc* arrives( 8owever, they do not scan the cartons or verify the item count inside the cases 9the e0ception )eing perisha)le food items, which are generally supplied )y local sources:( Dollar General's distri)ution centers do use information systems, running Catalyst warehouse management software, to trac* the inventory they receive and su)sequently ship to stores( 8owever, recipients at the stores merely chec* to see whether the cases are sealed properly( 7nventory management depends on the polling data that

headquarters gathers from store cash registers each night, which indicates how many of a product were sold and at what price( Dollar General has an increasing shrin* rate, which refers to the percentage of total sales that the company writes off as losses resulting from theft of product or other mishap( Dollar General's shrin* rate has grown steadily from 2(/ percent in +99. to ,(,. percent in 233/( The company's goal is to *eep shrin* rates to no more than +(;4 percent to 2 percent( tore managers )elieve that most of the company's losses are caused )y merchandise )eing stolen during shipping, which goes undetected )ecause there is no scanning upon receipt, and )y shoplifting in the stores( Corporate headquarters has chosen to focus on the employees as the root of the pro)lem( The measures that headquarters has ta*en to counter the shrin* rate include deploying loss prevention software, which identifies unusual cash register transactions, and installing video cameras to monitor the registers, the stoc*room, and even the store manager( These measures apparently have not made a dent in the shrin* rate( !hile Dollar General continues to watch the )ottom line carefully, its )usiness continues to grow( 7n 233,, the chain e0perimented with two larger, grocery"oriented stores under the Dollar General #ar*et name( )y the first quarter of 233/, 55 Dollar General #ar*et stores were in operation with plans to add ,3 more( 't the same time, the chain has continued to achieve growth through new stores and from increases in same"store sales( The question is, 8ow long can this strategy wor* for Dollar GeneralA Can the company *eep ramping up its )usiness without ramping up its technology )udgetA Crac*s )egan to show when the company reported a net loss of -4(, million for the third fiscal quarter ended 1ovem)er ,, 233/( On the heels of the report, Dollar General announced a restructuring plan that aimed to sell inventory more quic*ly, slow store growth, and shut down 533 underperforming stores( The latter move would cost -+,. million( The plan called for the discontinuation of a Bpac*awayB strategy for inventory in favor of dissolving lagging inventory through sharp discounts and simply disposing of it( ' -;9 million charge for getting rid of old inventory was largely responsi)le for he -4(, million third"quarter loss( 's a result of recent performance, Dollar General's stoc* dropped 236 while its competitors were en=oying gains of 236",36( ome analysts remained optimistic enough a)out the company to declare the stoc* a )argain at the reduced price( Dollar General hoped to recoup some of its losses and test out its new inventory strategy )y launching the largest clearance sale on seasonal items in its history on Decem)er 2/, 233/( ourcesC Dmil Eee, BDollar General hares on ale,B www(fool(com, Decem)er +,, 233/F BDollar General @ps the 'nte for 'fter"Christmas hoppers,B ?usiness !ire, accessed via GahooH Finance Decem)er 2;, 233/F BDollar General &eports Third"Iuarter 233/ Financial &esults,B ?usiness !ire, accessed via www(shareholder(com, Decem)er +2, 233/F $im ( 1ash, BDollar GeneralC . Days to GrowB and B&oad)loc*C 5,+;3 1ew)ies,B ?aseline #aga<ine, July 2335F '( Teymour Golsor*hi, B ales Creep 8igher at Dollar General, Fred's,B The treet(com, 'ugust 4, 2335, www(thestreet(comKstoc*sKretailK+3+;//;.(htmlFF BDollar General ales Continue @pward Trend,B 1ashville ?usiness Journal, 'ugust /, 2335, nashville()i<=ournals(comKnashvilleKstoriesK2335K3.K32Kdaily,3(htmlF BDollar General &eports 7ncreased July alesF Opens /+ 1ew toresF 'nnounces econd Iuarter Conference Call,B 5

?usiness!ire, 'ugust 4, 2335, home()usinesswire(comF BDollar General Corporation Fact heet,B 8oover's Online, www(hoovers(comF Dollar General Corporation +3"$ Form, www(sec(gov, accessed Decem)er 2/, 233/F and www(dollargeneral(com, accessed Decem)er 2;, 233/(

This activity contains 5 questions.

1- Describe Dollar General's business strategy. Why has the company been so successful? 2- Describe the role of management, organization, and technology in Dollar General's business strategy. 3- How well do information systems support Dollar General's business strategy? E plain your answer. 4- Does Dollar General miss out on any business opportunities as a result of its approach to information technology? !f so, what are these opportunities? 5- Do you thin" Dollar General can continue growing at it current rate? E plain your answer.

Good Luck!