Discount retailers reach for customers

Dollar General will open 38th Memphis store next Saturday

Dollar General Corp. will open its 38th Memphis shop next week, at 4245 Raleigh Millington, part of the proliferation of small-box discount merchants aiming to slice away sales from big-box rivals such as Wal-Mart Stores Inc.

“Obviously Wal-Mart is there for the bulk-up trip, but there’s purpose in being able to cross over for the convenience of simply having that merchandise in a format that’s closer to home,” said John R. Lawrence, managing director of equity research with the Memphis office of Stephens Inc.

Small-box discounters including Dollar General of Goodlettsville, Tennessee, and Family Dollar Stores Inc. of Matthews, North Carolina, have been on a U. S. construction binge.

The two chains and rival Dollar Tree Inc. of Chesapeake, Virginia, combined to open 892 new stores, remodel, renovate or relocate 1,052 stores and close 388 stores, during their most recent six-month financial reporting periods.

Growth was static at Memphis- based Fred’s Inc., where closings of Fred’s Super Dollar stores equaled openings and the emerging strategy is to focus on growing the pharmacy business.

Total sales at the four discount chains last year neared $ 38 billion, compared to the $ 476 billion global sales volume at Arkansas- based WalMart.

“Our whole model is built on convenience,” said Dollar General spokesman Dan MacDonald. “The average stop at a Dollar General is 10 minutes or less.”

Wal-Mart has responded with its own small stores, a concept that could eventually represent more competition for the smallbox discounters.

“In the city, there’s really nothing (from WalMart) inside of the (Interstate-240) loop,” Lawrence said. “As time goes on, it’s probably an interesting market as they (Wal-Mart) develop smaller formats. I wouldn’t be at all surprised to see that kind of entry in the Memphis market, to compete with Kroger.”

Rival merger bids currently in play between Family Dollar and Dollar Tree and between Dollar General and Family Dollar could lead to stores being squeezed out in instances where the discounters overlap.

But efficiencies resulting from combining the chains’ administrative and back-office functions are expected to free up cash to fuel further expansion efforts, Lawrence said.