Dollar General's messy stores are haunting the retailer as it takes a $95 million hit on inventory markdowns and deploys 'smart teams' to clean up

• Dollar General is trying to cut down on excess inventory to tame its messy stores.
• The retailer is marking down inventory and using special teams of employees to clean up stores.

Dollar General is trying to get a grip on its messy, overstocked stores.

The dollar store chain is marking down millions of items to move extra inventory, especially non-consumable items such as home decor and toys, that has been blocking the aisles at its stores. Those markdowns will be a $95 million hit to the company's operating profit in the second half of 2023, CEO Jeff Owen said on Dollar General's second-quarter earnings call.

"We believe it will drive traffic and also more quickly reduce excess inventory," Owen said on the call.

To clean up its stores, Dollar General is also deploying "smart teams," or groups of employees who move between multiple stores to organize excess inventory, Owen said. The teams, one in each of Dollar General's districts in the US, are part of $50 million that the company is adding to its spending on labor.

"The stores that these teams have been able to touch, we've seeing the sales accelerate and continue and they haven't plateaued," Owen said.

One former Dollar General employee who worked on a smart team in Texas told Insider that the job involves taking unpacked inventory off of rolltainers, or metal carts that hold boxes of merchandise and have become a common sight at the ends of aisles at many Dollar General stores. The employee's smart team was usually sent to stores right before they underwent an annual inventory review, the employee said.

"It was basically doing a whole-store revamp," the former employee said. "We'd throw all the penny stuff away," the employee said, referring to Dollar General items that have been marked down to one cent each in the store's inventory and have become targets for bargain hunters.

Dollar General's same-store sales for the second quarter fell 0.1%. Analysts surveyed by S&P Capital IQ had expected growth of 0.8%.

Messy stores could be a turn-off for middle-income shoppers who have historically become a key customer base for dollar stores during economic downturns as its core customer – the low-income shopper – is squeezed by rising living costs.

These shoppers trading down have been used to neater and more organized shopping conditions at full-price stores.

"The state of some Dollar General stores over the course of this year has been unhelpful to converting new shoppers into bigger spenders and to increasing basket size more generally," Neil Saunders, managing director of GlobalData Retail said in a note to clients on Thursday.

"While few consumers expect Dollar General to be a place of great inspiration, basic shopkeeping standards – such as not having aisles completely blocked by cages of merchandise, which are a function of excess inventory – are important," he added.

With more discount store options to choose from and chains like Walmart focusing on price, there are fewer reasons for these consumers to have to switch to Dollar General.

Aisles at many Dollar General stores have been clogged with everything from dog food to school supplies over the last few years. Employees have told Insider that one cause for the mess is that Dollar General hasn't allocated enough worker hours to maintaining them.

That's led to multiple problems, such as local fire marshals closing Dollar General stores because merchandise is blocking fire exits. One former employee in Texas also told Insider about a store where Dollar General's excess inventory was chewed and defecated on by rats.

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