Dollar General 2006 Annual Report Download - page 8

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transfer capabilities and installed an automatic inventory replenishment system in all stores. In
addition, we completed a new stock ledger and sales flash system. Also, for the first time, we
equipped store district managers with personal computers to enable them to access daily
merchandising information.
Merchandising Initiatives. Our merchandising initiatives are designed to promote same-
store sales increases. We continually evaluate the performance of our merchandise mix and
make adjustments when appropriate. In recent years, we have increased our emphasis on the
highly consumable category by adding items in the food, paper, pet products, household
chemicals, and health and beauty aids categories. Also in recent years, we began offering
perishable products, which include a selection of dairy products, luncheon meats, frozen foods
and ice cream. Other recent initiatives include prepaid phone cards and branded apparel.
In the fourth quarter of 2006, we commenced execution of an initiative to discontinue our
traditional inventory packaway management model in an attempt to better meet our customers’
needs and to ensure an appealing, fresh merchandise selection. With few exceptions, we plan to
eliminate, through end-of-season and other markdowns, existing seasonal, home products and
basic clothing packaway merchandise by the end of fiscal 2007. In addition, beginning in fiscal
2007, we plan to sell virtually all current-year non-replenishable merchandise by taking end-of-
season markdowns, allowing for increased levels of newer, current-season merchandise. We
believe this strategy change will enhance the appearance of our stores and will positively impact
customer satisfaction as well as the store employees’ ability to manage stores, ultimately
resulting in higher sales, increased gross profit, lower employee turnover, and decreased
inventory shrink and damages. We also expect that this improved inventory management will
result in more appropriate per store inventory levels.
We expect to increase our sales mix of merchandise categories with higher gross profit
rates, such as home products, basic clothing and seasonal merchandise, as we become
increasingly able to improve our merchandise assortments and stock our stores with more current
inventory. Achievement of our goals is contingent upon this expected sales mix improvement as
well as effective inventory management and reductions in inventory shrink and damages.
In 2006, we initiated a new store layout that we believed would drive sales and improve
our merchandising mix. The new layout was launched in a test mode in early 2006, was further
developed during the year, and became our standard new store format by the end of 2006.
Through the process of opening new stores and re-formatting a limited number of existing stores
there were approximately 359 stores operating in this new format as of March 2, 2007. The
results have been encouraging, as we have seen additional sales, including increased sales of
higher margin goods. Additionally, improved merchandise adjacencies and wider, more open
aisles have enhanced the overall guest shopping experience.
Merchandise
Dollar General stores offer a focused assortment of quality merchandise in a number of
core categories. We operate as one reportable segment and separate our merchandise into the
following four categories for reporting purposes: highly consumable, seasonal, home products,
6