Dollar General (NYSE:DG)

CAPS Rating: 3 out of 5

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Player Avatar Laborinsider (< 20) Submitted: 3/3/2011 2:23:19 PM : Underperform Start Price: $28.00 DG Score: -73.93

One area of concern is Dollar General's razor thin profit margins. Whereas 70% of Dollar Generalrevenue come from low profit margin consumables, its rivals are substantially less reliant onthese items. Consumables account for only 50-60% of overall revenue at typical dollar stores. Inorder for Dollar General to expand its earnings growth it will need to refocus its efforts on non-consumables that carry higher profit margins. This will not be an easy ordeal.On the supply side, there is little room for reducing the cost of stocking its stores. In the pastDollar General has been able to offer many of its products at rock bottom prices because ithas purchased its products directly and indirectly from the cheapest Chinese sweatshops. Ourindependent research at China Labor Watch, a New York based non-profit NGO, has uncoveredthe most heinous sweatshop conditions in Dollar General's supply chain. Conditions are far worsethan any of the other major discounters. In our most recent report on the Dollar General supplierswe looked at four confirmed Dollar General factories to assess labor conditions. We uncoverednumerous violations at these factories including safety hazards and wages that do not meet theminimum legal standards according to even Chinese laws.In our research we found that workers often labor hours beyond the legal limits, werecompensated a base pay of $0.74-0.80 an hour with overtime pay that in some cases did not meetthe minimum wage requirements by Chinese law. We see three major risks to Dollar General'scurrent supply chain. First, we anticipate a stronger Chinese currency and second, increased laborcost and less tolerance for sweat shop conditions by its labor force. Third, with such heinousviolations of labor rights in their sweatshop suppliers and Dollar General's reluctance to work withsuppliers to improve their labor conditions, what damage will this have to its reputation? If DollarGeneral's source of cheap Chinese goods going forward is unsustainable, how will this effect itsalready razor thin profit margins?

Member Avatar stealth999x (< 20) Submitted: 12/1/2013 12:01:23 AM
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I've done some homework on this, and I have to say Laborinsider brings up some good points.

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