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Dollar Tree, Inc. (DLTR), Dollar General Corp. (DG): Square Footage Growth and Online Channel Will Drive Sales for This Retailer

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Dollar Tree, Inc. (NASDAQ:DLTR) is looking for a growth opportunity with increased selling space this year. The company will achieve this with continuous square footage growth and with the expansion of its online channel Dollar Tree, Inc. (NASDAQ:DLTR) Direct. It is increasing its square footage with new store openings in the US and Canada. Dollar Tree, Inc. (NASDAQ:DLTR) Direct will be a growth driver with its chain-wide MasterCard roll-out in FY 2013. It is also taking some initiatives in merchandising and assortment to fuel growth. With the addition of new SKUs and its Deal$ concept, its merchandising initiative is expected to bring incremental impulsive purchases. Now, let’s discuss these initiatives in detail.

Dollar Tree, Inc. (NASDAQ:DLTR)

Square footage growth in the US and Canada will help to generate incremental sales

Dollar Tree, Inc. (NASDAQ:DLTR) is increasing square footage and selling space to boost its sales growth. In 2012, it grew rapidly with 320 new stores and 80 stores remodeled. In FY 2013, it is expected to open 340 new stores with relocation of 75 stores in the US and Canada. It has already opened 94 new stores and relocated and expanded 16 stores in the first quarter of this year. The company is on track for its yearly store growth plans. Over the long term they will look to increase locations up to 7,000 in the US and 1,000 in Canada.

Dollar Tree, Inc. (NASDAQ:DLTR) Direct with Mastercard Inc (NYSE:MA) roll-out will uplift sales

Debit and credit card purchases represent around 39% of total sales. Acceptance of Mastercard Inc (NYSE:MA) at 75% of stores boosted credit penetration by 180 bps YOY in Q4 last year. Mastercard Inc (NYSE:MA) roll-out will be chain-wide in FY 2013. This will boost Dollar Tree, Inc. (NASDAQ:DLTR) Direct sales because credit the card customer spends double compared to the cash customer. This online channel offers around 2,600 items and will continue to uplift sales with 5 million unique visitors to site.

New front end fixtures and Deal$ format will increase impulsive purchase

The company is taking new merchandising initiatives where it has introduced new front end fixtures with 40% more impulsive items. It has also expanded 75 new SKUs of stationery and 90 new SKUs of candy. Its small format stores concept Deal$ continued to grow with 25 new units in 2012 and a similar growth rate in 2013. In the first quarter of 2013, it lifted $1 restrictions in this value segment offering. This will help it to offer more products to a larger customer base, which is expected to bring incremental sales.

Downside Risk

Some of the downside risks are also associated with the above mentioned initiatives. If the company continues to increase its store footage, then its comp sales growth will take a hit. Major Discount stores like Dollar General Corp. (NYSE:DG) and Family Dollar Stores, Inc. (NYSE:FDO) are expanding their store base and offering low priced products. This will create pressure on the margins of the company. Deal$ format stores are good for high density locations, but they are not as profitable as Dollar Tree. These risks are there, but the moves will pay off in the long term with fundamental growth plans in place.

Peer Analysis

Among Family Dollar Stores, Inc. (NYSE:FDO), the two other major players are Dollar General Corp. (NYSE:DG) and Family Dollar Stores, Inc. (NYSE:FDO). Dollar General Corp. (NYSE:DG) is a strong competitor with expansion plans for 635 new stores, including 50 stores in California in FY 2013. Its new stores in Dollar General Corp. (NYSE:DG) Market and Dollar General Corp. (NYSE:DG) Plus format stores will have more coolers/freezers this year. This will help them to offer more fresh produce and meat. Its tobacco rollout will drive top-line growth for them. Tobacco sales were 33% more than expected in the test markets and are expected to increase comparable store sales. The Phase 5 initiative of merchandise assortment and its expansion to 4,200 stores will help it to increase right selling space and place most productive SKUs to offer.

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