Dollar General 2008 Annual Report Download - page 7

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enhanced the appearance of our stores and has positively impacted customer satisfaction as well
as our store employees’ ability to manage stores.
Project Alpha also encompassed significant improvements to our real estate practices. We
have integrated the functions of site selection, lease renewals, relocations, remodels and store
closings and have defined and are implementing rigorous analytical processes for decision-
making in those areas. As a first step in our initiative to revitalize our store base, we performed a
comprehensive real estate review resulting in the identification of approximately 400
underperforming stores, all of which we closed by mid-2007. These closings were in addition to
stores that are typically closed in the normal course of business, which over the last 10 years
constituted approximately 1% to 2% of our store base per year. In 2008, our store closings were
more in line with historic levels, as we closed 39 stores. As part of Project Alpha, we moderated
our new store growth rate beginning in 2007 to enable us to focus on improving the performance
of existing stores, including increasing the number of store remodels and relocations in order to
improve productivity and enhance the shopping experience for our customers. We intend to
accelerate our new store growth in 2009 by opening approximately 450 new stores and
remodeling or relocating approximately 400 stores.
As a result of opening new stores and remodeling existing stores, as of February 27,
2009, approximately 1,600 stores are operating in our racetrack format, which is designed with
improved merchandise adjacencies and wider, more open aisles to enhance the overall guest
shopping experience. We plan to continue to review and refine all of our existing store layouts,
including the racetrack format, as well as test new layouts to further drive sales growth and
margin enhancements through improved merchandising.
Our Industry
We compete in the deep discount segment of the U.S. retail industry. Our competitors
include traditional “dollar stores,” as well as other retailers offering discounted convenience
items. The “dollar store” sector differentiates itself from other forms of retailing in the deep
discount segment by offering consistently low prices in a convenient, small-store format. Unlike
other formats that have suffered with the rise of Wal-Mart and other discount supercenters, the
“dollar store” sector has grown despite the presence of the discount supercenters. We believe it
is our substantial convenience advantage, at prices comparable to those of supercenters, that
allows Dollar General to compete so effectively.
We believe that there is considerable room for growth in the “dollar store” sector.
According to data from Nielsen Homescan Panel (“Nielsen”), “dollar stores” have been able to
increase their penetration across all income brackets in recent years, climbing from 45% in 1997
to 64% in 2008. Though traditional “dollar stores” have high customer penetration, according to
Nielsen the sector as a whole accounts for only approximately 1.5% of retail spending, which we
believe leaves ample room for growth. Our merchandising initiatives are aimed at increasing our
stores’ share of customer spending.
See “Our Competitive Strengths” and “Competition” below for additional information
regarding our competitive situation.