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Filling Big Shoes With Square Feet: What Dollar General-Walmart Deal Means

While Walmart, Target and other chains test ways to maneuver into smaller footprints, other retailers benefit from their missteps. Most recently, Dollar General acquired the slightly larger Walmart Express stores. Still, the future of retail depends more on connections than size.


 

Dollar General is committed to showing the world’s largest retailer that it can fill some pretty big shoes.

The value-price chain in July acquired 41 former Walmart Express stores, and in doing so laid the groundwork for adding a new concept to its portfolio – larger-format stores. It is the exact opposite of what Walmart had hoped to achieve with its Express brand – to operate small-format locations that upstage and outsell the dollar stores.

DollarGeneral_BAPInstead, Walmart abandoned its Express model in early 2016, five years after its launch, and shuttered all 102 stores. Enter Dollar General. The shift implies that while Walmart, Target and other chains are testing new ways to maneuver into smaller footprints and tighter markets, other retailers are poised to benefit from their missteps.

And back to the theoretical drawing board I go, but only to confirm my hypothesis.

I recently wrote about the shift among mega-merchants to smaller-format stores, concluding that the retailers of tomorrow will have less to do with size than with making consumer connections. It can be a connection as practical as having the items the shopper wants at prices that give her peace of mind, or as frivolous as dressing room mirrors that make purchase suggestions.

The hard part is, and always will be, determining the right stuff to make these connections with the target shopper. Particularly because retail’s persistent cycle of change – thanks to shopper-enabling technologies – is spinning ever tighter.

Making The Most Of Little

Many consumer wallets continue to be tighter as well, and that is a factor when considering the retail of tomorrow. A thriving segment of the retail industry, including Dollar General and Walmart, is built to serve the cost-conscious shopper.

Dollar General, in its first quarter earnings report, describes its core customers as “often among the first to be affected by negative or uncertain economic conditions … and are among the last to feel the effects of improving economic conditions.”

“Because the customers we serve are value-conscious, many with low or fixed incomes, we are intensely focused on helping them make the most of their spending dollars,” the company states.

Little Big Chain

This focus has led to significant growth – Dollar General opened almost 250 stores in just the first quarter of 2016 and plans to open 900 total for the year.

The Walmart Express acquisition involves 41 slightly larger stores in nearly 12 states, according to The Wall Street Journal. Dollar General plans to move many of its stores into these locations, filling some of the additional space with fresh produce and meat.

These are not Dollar General’s first larger-format stores, nor the first that carry fresh produce. It operates roughly 120 such locations now and expects to add the former Express locations by October. That is a small percentage of its almost 13,000 total, though the chain plans to expand to 20,000 U.S. stores by 2020, according to the WSJ. A higher percentage of the new locations may be larger formats.

Seeking The Relevant Sweet Spot

And this, I suspect, gets to the heart of all of these changes. Big store or small, succeeding at street level requires having the items and experience shoppers want and will show up for.

Consumers can order plenty of staple items online, and that segment is growing as well. Dollar General’s customer may not fit squarely into this cluster, but having said that, this can change deceptively fast in today’s quick-moving tech space. That same consumer may have less incentive to slip on a pair of shoes, check her teeth and drive to the store in the future.

Dollar For Your Thoughts, Shoppers

The challenge, again, is the tightening cycle of change at the consumer level. Retailers cannot read their shoppers’ thoughts, though shoppers wish for thought-reading experiences.

This is in part why retailers are so keenly interested in data technologies and marketing that help them connect to individual customer behaviors – tools such as loyalty programs or technologies that mine detailed transaction logs. Dollar General offers an email couponing program, through which it can collect basic data about what participating shoppers purchase, when they redeem. That is still a limited-size net.

So Dollar General, like others, is planning its stores of tomorrow with what it does know. Some will be larger, but like Walmart, Target and others, some also may be smaller. According to its quarterly report, Dollar General also is testing stores of less than 6,000 square feet, “which we believe could allow us to capture growth opportunities in metropolitan areas as well as rural areas with a low number of households.”

It would be easy to say that in a digital age, size doesn’t matter. But as long as experiences are relevant, convenience is a necessity and wallets are tight, it will play a role. The store will only succeed, however, if it contains the promise of a connection.

Creating those connections, regardless of price – those are the biggest shoes to fill.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.

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