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Dollar General had a rough go of it last week: JPMorgan downgraded its stock rating to the equivalent of “sell.” CNBC’s Jim Cramer told investors to “stay away,” and Bloomberg published an exposé titled “Why Dollar General Might Just Be the Worst Retail Job in America.”
The string of bad headlines came just a few weeks after the company cut its annual profit forecast, even as fellow discounters Dollar Tree and Dollarama appeared to benefit from cash-strapped consumers trading down to lower-cost options.
“It’s kind of an ironic situation,” Christine Short, vice president of research at Wall Street Horizon, told Retail Brew, because “dollar stores are supposed to do well in this environment.”
Winning rural: One headwind for Dollar General, she said, is that competitors are getting better at serving rural communities, where 80% of the chain’s stores are currently located.
Indeed, the challenge is top of mind for CEO Jeffery Owen, who told investors during the company’s Q2 earnings call that “winning in rural” was one of the company’s top priorities. As recently as 2018, Dollar General was earning plaudits for opening stores in areas not even Walmart served.
“We went where they ain’t,” David Perdue, CEO of Dollar General from 2003 to 2007, told the Wall Street Journal back in 2017, when the chain’s future looked bright.
But now expanding e-commerce options are helping close the gap, Short said.
Amazon, for example, launched a program earlier this year that pays small businesses to handle “last mile” deliveries, with a focus on dense cities and underserved rural areas. In a similar vein, Walmart is upgrading and expanding regional distribution centers in rural communities such as Cullman, Alabama, and Palestine, Texas, to include automation and robotics.
The competition is heating up at the same time Dollar General’s labor practices are coming under scrutiny. As outlined in the Bloomberg piece, blocked fire exits, rat infestations, and a lack of security personnel are just a few of the hazards facing employees. In 2022, it became the first major retailer to receive OSHA’s “severe violator” designation.