When you visit Dollar General, you notice pretty quickly that the chain has very low staffing levels. Stores are often in a mild stage of disarray with shelves often not fully stocked while others have boxes blocking the aisles.
There's usually a single person working at the cash register and sometimes another person on the floor. The chain has been plagued by employee complaints and John Oliver's "Last Week Tonight" even highlighted its staffing levels and disorganized stores in a 2023 episode.
Related: Costco is about to make a huge change
The chain had been supplementing its meager staff with self-checkout. That's a recipe to encourage theft — both intentional and accidental — which is why Target, Walmart, and Walgreens all have staff dedicated to monitoring self-checkout lanes, and in some cases, has dropped or limited them,
That's a decision Dollar General (DG) -) has arrived at as well. Newly returned CEO Todd Vasos discussed that decision during his chain's third-quarter earnings call.
"We plan to increase the employee presence at the front end of our stores and in particular, the checkout area. While self-checkout has contributed to the convenient proposition for our customers in certain stores, it does not reduce the importance of a friendly, helpful employee who is there to greet customers and assist while the checkout process is happening," he said,
Eliminating self-checkout is not the big move the low-cost retailer is making to try to cut down on theft.
Image source: Getty
Dollar General makes merchandise cuts
Dollar General isn't a dollar store. It's a low-cost retailer that sells essentials, everything from food to household goods. In many cases, it serves a clientele that can't easily access another retailer. That means that any change the retailer makes in its merchandise has a large impact on its customers.
"We have also challenged our merchants to consider how they can drive simplification for our stores and supply chain as well with meaningful SKU rationalization as one of the most immediate areas of focus. To that end, we have identified several opportunities to eliminate certain SKUs that have become less productive," Vasos said.
Dollar General is calling this a way to focus on items that sell better, but it does mean offering fewer choices for consumers. Vasos also believes that cutting how many items the chain sells will also cut down on theft.
"We believe these actions will help further reduce inventory and shrink, while simplifying operations in both DCs (distribution centers) and stores to drive greater efficiencies over the longer term," he said.
Dollar General focusing on margins
"For third quarter, gross profit as a percentage of sales was 29%, a decrease of 147 basis points. This decrease was primarily attributable to an increase in shrink, lower inventory markups, and increased markdowns," the CEO added.
Vasos believes that the economic condition of the chain's core customers remains a problem in the new year.
"In the near term, we expect continued overall pressure on the sales line, particularly in the nonconsumable categories," he added.
The CEO, however, keeps coming back to shrink as a drag on the company's earnings.
"Within gross margin, in addition to sales mix pressure in our previously announced markdowns, shrink has continued to be a sizable headwind, and we expect this will remain with us into next year as any shrink improvement typically takes at least a year from a store's most recent count to show up in our financial results," he added.
Vasos does believe that his company's labor shift and its merchandise cuts are the right move.
"We feel that we're on the right track with our back-to-basics moves here, both in our labor investments, in our inventory investments, as well as in our supply chain and merchandising. So, we feel like we've taken the right appropriate actions now, and we're moving with speed and intent," he added.
Unlock the secrets of the stock market with Real Money Pro. Gain direct access to elite portfolio managers' top stock picks and time-tested investment strategies. Embark on your journey to financial success — start now.
