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Business

Dollar General growing fast

| Wednesday, Dec. 3, 2003

NASHVILLE, Tenn. -- Dollar General is sometimes mocked as the low-rent Wal-Mart, an even cheaper version of the world's largest retailer.

But Dollar General has quietly used a very different business model to become one of the fastest-growing retailers in the United States, opening more than half its 6,653 stores in the past five years. Instead of operating superstores with huge inventories like Wal-Mart, Dollar General opens smaller, more convenient stores in rural areas, or in poor neighborhoods of midsize cities.

Dollar General sells food, beauty products, cleaning supplies, clothing and housewares, targeting customers with a median household income of less than $35,000. The typical transaction ranges between $8 and $13.

"We have one thing in common with Wal-Mart," said David Perdue, chief executive of Goodlettsville-based Dollar General. "Both companies took a down-home approach to satisfying an underserved customer."

The slow economy has helped the company's growth -- middle-income shoppers also find that Dollar General is a good place to buy certain everyday items, and households with a median income of more than $50,000 represent a growing source of revenue for the retailer.

But Dollar General doesn't try to compete with Wal-Mart's broad range of goods.

"When you're in a 'big-box' retail environment, you're obligated to compete on assortment," Perdue said. "In our 'small-box' environment, we don't have that luxury. So the merchandise mix we put in our stores has to be much more productive."

The standard Dollar General store is only 7,000 to 8,500 square feet -- tiny when compared to Wal-Mart's typical 190,000-square foot supercenter.

But Dollar General is testing a new format -- the Dollar General Market, which is about twice the size of a standard store and sells more food. The company says two test stores have exceeded revenue estimates, and there are plans to open another 20 next year.

Dollar General has stayed in small towns, opening most stores in cities with fewer than 75,000 people. Its major competitors are Family Dollar, Dollar Tree, 99 Cents Only and Fred's.

J.L. Turner and his son Cal started the company as a wholesale business in 1939, and the first Dollar General Store opened in Springfield, Ky., in 1955.

The company expects to open about 660 new stores this year and about 675 next year. It already has stores in 27 states, mostly in the South and Midwest, and it will open its first stores in Arizona, New Mexico and Wisconsin next year.

Sales are expected to rise nearly 15 percent this year and net income is expected to be up about 28 percent. Its stock recently sold on the New York Stock Exchange near its 52-week high of $23.40 a share.

The company has maintained its growth despite a Securities and Exchange Commission investigation.

Former CEO Cal Turner Jr., grandson of the company's founder, resigned last September after Dollar General acknowledged overstating profits by $100 million from 1998-2000. The company fired its auditor and agreed in January to pay $162 million to settle related shareholder lawsuits.

Perdue took over in April and hired Lawrence V. Jackson, a longtime executive at Pepsi-Cola Co. and more recently at Safeway Inc., to be the company's president.

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