Dollar General: A Distressed Retail Giant

Welcome to the 61st Pari Passu newsletter.

Today, we will be exploring the recent downturn of Dollar General (NYSE: DG). Dollar General is the largest dollar store in North America (19,414 stores), followed by Dollar Tree (15,115 stores) and Family Dollar (owned by Dollar Tree, 8,451 stores). Discount retailers, like Dollar General, Aldi, and TJ Maxx, thrived during the pandemic and have continued to perform well in times of heightened inflation and cost consciousness. However, recent expansions (both in terms of the number of stores and the types of inventory sold), trends in consumer behavior, and regulatory attention have introduced costly challenges that call into question the future of DG’s financial and operational health [1]. Let’s jump in.

Overview of Dollar General’s History

Dollar General was founded in 1939 by James Luther Turner and his son Cal Turner Sr. as a family-owned wholesale business in Scottsville, Kentucky. This was the time when general stores were the main stores where small communities bought food and household supplies. For reference, Walmart and Target did not come along until 1962. DG began as a liquidator of bankrupt general stores during the Great Depression and later transitioned to retailing in the 1950s. The first DG store opened in Springfield, Kentucky in 1955, with the concept of selling a variety of merchandise for no more than one dollar. The idea proved to be successful, and the company expanded rapidly throughout the rural areas of the South and Midwest. The strategy was simple: insert itself in a small town (20,000 people or less) that lacks the demand or infrastructure for a Walmart and cater to these low-income, rural customers who do not have other options to buy merchandise or the disposable income and space to buy it in bulk. By 1957, Dollar General had 29 stores and annual sales of $5mm. The company went public in 1968, and continued to grow its store count, product assortment, and geographic reach. By the end of 2000, Dollar General had over 6,000 stores in 27 states, and annual sales of $4.6bn [2].

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