A singular sense of mission

Discount Store News, Dec 8, 1997 by Laura Heller

Dollar General is positioned on the retail battlefield armed with an unusual weapon: a quasi-religious merchandising philosophy that proclaims the company will prosper if it helps provide a better life for its low-income customers by offering high-quality consumables at the lowest possible price.

In keeping with that philosophy, the company considers its buyers "customer representatives" who sit down with vendors to fight for quality goods that its customers really need.

Their job is to immerse themselves in the lifestyles of Dollar General customers so that when they negotiate with vendors they encourage the suppliers to present their very best products at the 20 price points the company works with, from $1 to $35.

The Dollar General name is not just semantics, it's a mind set, according to Leigh Stelmach, executive vice president, operations and merchandising.

Dollar General customers historically are low-income and retired families living on fixed incomes. "They have to balance their checkbooks every day, at least mentally," Stelmach told DSN.

To carry out its merchandising mission, Dollar General looks to employees "who are focused on accomplishing something with their lives, who are digging deeper into themselves and who can build -- rather than just establish -- power bases," Stelmach said.

"Dollar General is very accommodating to those with a spiritual position on life." That's the company's style, Stelmach said. "It works for us" by bringing out the genius in every person.

Many of the Dollar General buyers were raised in small towns in hard-working families with limited incomes, making them sensitive to the needs of Dollar General customers.

Stelmach, who was raised in the village of Modena, Wis., population 100, fits that mold. "Dad worked in the highway department. We all worked. We fought hard to make it, he said.

"I paid for my own education," said Stelmach, who earned his B.S. in economics from Eau Claire State University.

Stelmach has served in retailing for 32 years, including 15 years at Target and stints at other mass merchants including Fred's, Fred Meyer and Howard's Discount Stores.

His interests are reading and gardening ("I love roses," he said), and his retirement dream is to buy some ranch land one day in Montana and raise cattle and horses.

That sort of quintessentially American vision is very much in keeping with both the company's traditional values and its unpretentious respect for a customer base made up largely of shoppers whose average transaction at Dollar General stores runs just over $7.

"Our customers are salt-of-the-earth people who are savvy about spending money because they have to be," he said.

To meet their needs, Dollar General annually reviews every item on its short list of about 3,000 skus to make sure each is delivering the best value at the lowest price, Stelmach said. And every year the retailer culls from its offerings about 150 to 200 items that no longer fit that criterion, and in their place develops new products that do, such as brooms, mops and dust mops that sell for $1 -- well below the average industry price range of $2.50 to $7.

Dollar General buyers inform vendors that compared to other retailers they will place relatively few products on the company's shelves, Stelmach said. But in return, the vendors know they will sell large volumes of those items.

Comp store sales increases this year are running at 10%.

"Dollar General is item-driven, not category-driven," Stelmach said.

Its merchandising approach produces constant downward pressure on margins, Stelmach said, and overhead has been slashed to 19% of sales in '97, from 25% five years ago.

In keeping with its corporate culture, derived in large measure from the religious leanings of its chairman, Cal Turner Jr., Dollar General passes on cost savings to its customers in the form of either better products or larger sizes of a given product at the same price.

"That's the heart of our merchandising philosophy," Stelmach said.

Strong pressure on margins, though, forces Dollar General to seek ways to become more productive, such as lowering distribution center costs.

"Distribution centers play a vital role in creating value," Stelmach said.

Thanks to automation and employee innovations, Dollar General has slashed the DC cost of handling a carton of goods by 100% over the last five years, he said.

In store technology, Dollar General installed POS registers for the first time and expects to receive benefits from the change next year.

Dollar General now considers itself a "customer-driven distributor of consumables" rather than a conventional retailer that decides what goods to carry based solely on trends, fashions and the highest margins.

The key to achieving high levels of productivity is "making operations simple to run," Stelmach said.

Turner often refers to such a philosophy as "the genius of simplicity," Stelmach said.

To carry that credo into the 21st century, Dollar General reset all 2,700 stores this year to a new prototype design that emphasizes basic consumables and de-emphasizes fashion-oriented apparel. In the process, Dollar General pruned various categories, such as fashion apparel, to stock about 750 new skus of hard lines, Stelmach said. The new store prototype pulls together various departments and reduces the floor space devoted to apparel, which previously took up two-thirds of the selling floor.