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Dollar General reported record sales for the first quarter of 2013, with same-store sales growing 2.6 percent and total sales up 8.5 percent to $4.2 billion.
But CEO Rick Dreiling said a conscious shift by the dollar store chain to add national brand items in the end of 2012 and early in 2013 had an impact on margins. And it’s a trend that Dollar General will look to reverse the rest of the year.
“As we moved through the back part of last year and into the first part of this year, we began to expand our SKU base to include more and more national brand items, and those national brand items historically carry a little bit lower margin than our private brands, and we began to give the customer more alternatives to our private brand offering,” Dreiling said on a conference call with analysts, according to transcripts of the call from Seeking Alpha. “We historically have been about good and best, or good and better when you look at our product assortment. And now, we're a little bit more good, better and best, having given more alternatives to the consumer. And let me give you a perfect example here.
“Six months ago, we carried the private brand version of Claritin in a 12-count, a 24-count and a 36-count, and we only carried Claritin in the 24. So if you wanted less than 24, you bought our private brands. And if you wanted more, you bought our private brands. Now … the customer has their option across all six SKUs. And we inadvertently, in our zest to be a little more relevant, allowed the customer to be able to trade down on the margin on the … consumable side of the business.”
Dreiling said the plan going forward is to both add private label items to the store as well as removing some of the national brand SKUs, leaving the overall chain with more private label products as a mix of available SKUs.
“We are going to further expand our private brand presence again this year as we have in the past,” Dreiling said, according to the Seeking Alpha transcripts. “But … we're going to rationalize some of the SKUs that we've put in. And the merchants have a plan to sell it down versus – it's good merchandise here, and we feel that we can adjust that assortment and tighten it up as we move through the fourth quarter.
“You got to remember, what we're talking about here is not eliminating the brand. It's eliminating sizes that give the customer a choice. So you're still going to be relevant in that you're going to have the national brands, we just don't want to offer as many alternatives in terms of size. That's all.”