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Dollar General (NYSE: DG) is a business that needs a catalyst to turn things around, desperately. Over the past 12 months, it has lost more than 40% of its value. Simply opening more stores for the sake of increasing sales hasn't been paying off.
The large discount retailer is facing many challenges these days. It has said in the past that its core customers are struggling, and many of those cash-strapped shoppers are turning to online retailers for cheap goods. Even if it means waiting a few weeks, shoppers are becoming increasingly comfortable using sites like Temu (which PDD Holdings owns) for the sake of cutting costs.
Dollar General isn't surrendering, however. The company is planning to offer same-day delivery. Depending on how the rollout goes, that could make or break the stock's performance over the next few years.
Dollar General offers same-day delivery at 75 stores, and plans to expand
In December, Dollar General reported its third-quarter results (for the period ending Nov. 1), which were lackluster, yet again. While the company did grow its sales by 5% to $10.2 billion, that includes the boost it got from opening new locations. If you strip that out, its same-store sales growth rate was only 1.3%. At a time when shoppers are looking for deals and ways to save, Dollar General isn't seeing a big flurry of activity.
The bigger development, however, was that on its earnings call, management said that it had begun testing same-day delivery at 75 locations. The goal is much bigger -- to offer it at "thousands of stores." The company has partnered with an unnamed third party to do the deliveries.
For Dollar General, this could potentially be a way to reach more customers. For people who are already shopping online, it could make Dollar General a more attractive option if it means they don't have to physically visit a store location.
Same-day delivery might not necessarily help the bottom line
Offering delivery is a good way for Dollar General to reach different types of customers and serve varying needs. But the danger is that if it does so too quickly and aggressively, the payoff might not be there. Delivery fees can be significant for a business like Dollar General, which already runs on tight margins as it is.
There isn't a lot of room for Dollar General to take more of a hit on its bottom line and still remain profitable. Delivery could certainly help increase sales, but if its margins deteriorate in the process, then little if any of that additional revenue would trickle down to the bottom line.