Dive Brief:

• As Dollar General continues its physical expansion — at the fastest pace in retail this year — the discounter said it would nearly triple the number of locations for its new suburban-focused concept Popshelf next year.
• For 2021, the company is on pace to add 50 Popshelf locations by year end, executives said on a conference call. The retailer is targeting 1,000 Popshelf locations total by the end of fiscal 2025.
• Dollar General made the announcement in its third quarter earnings release, in which it posted a comparable sales decrease of 0.6% against last year's growth of more than 12%.

Dive Insight:

Popshelf is Dollar General's answer to what many view as a hole in the market. The retailer is fashioning a higher-end discount store that uses a treasure hunt format and higher price points to target value shoppers of higher incomes than the traditional dollar store.

Dollar General launched the format last year amid the pandemic. Annualized sales have so far proven higher than first-year sales of a traditional Dollar General, according to executives. Margins at the stores are also higher, thanks likely to the higher prices (which typically run up to $5) and assortment, which is more focused on home and seasonal goods, versus consumables and essentials, of a typical Dollar General.

A comparison to Five Below is perhaps unavoidable, though Popshelf targets an older customer — specifically, suburban women with household annual income ranging from $50,000 to $125,000. But analysts, even as they invoke Five Below, have said in interviews it is an imperfect analogy.

"There's nothing like it out there," Scott Mushkin, CEO of R5 Capital, told Retail Dive earlier this year. "It's very much on trend. The merchandise is insane. It's just a really fun format. In some ways, it's like Five Below all grown up. But that probably doesn't do it enough justice." 

CEO Todd Vasos said that the target number for Popshelf locations is "incremental," meaning they are on top of any stores Dollar General would have otherwise built in that time. And the company plans to build a lot of stores. In 2022 alone, Dollar General is plotting 1,110 new stores.

The company also announced plans to build Dollar General stores in Mexico, its first foray outside the U.S.

Dollar General's business more generally is adjusting to shifts in shopping patterns since the pandemic began. In the early months of the crisis, the retailer's stores became a go-to for shoppers consolidating their trips and seeking out essential goods.

GlobalData Managing Director Neil Saunders said in email comments that customers who sought out Dollar General for its proximity and convenience last year "have now resumed more normalized shopping patterns, visiting big box stores such as Walmart." Even so, Dollar General has held on to much of its sales, with Q3 comp sales up 11.6% from 2019.

At the same time, the discounter could benefit from the current inflation as consumers seek out lower prices. Vasos called out the ongoing importance of the $1 price point to its customers on the call with analysts and said that 20% of the retailer's assortment was still priced at a dollar or lower. (That comment comes just over a week after Dollar Tree signalled it would move toward a $1.25 price for much of its assortment.)

Profits in the quarter fell slightly, in part because of transportation costs and a higher proportion of lower-margin consumables in the sales mix. While executives said the company has been affected by widespread supply chain issues, they are pleased with Dollar General's overall inventory position headed into Q4.