Every retailer wants to be more like Costco, at least when it comes to the chain’s financial results.
Costco drives revenue by selling memberships.
“The most important item we sell is the membership card,” Costco CEO Ron Vachris told Fortune in an April interview.
Membership fees matter to Costco because they generate roughly 60-70% of its operating profits from them.
“This model generates predictable, high-margin income primarily from membership fees, which account for a significant portion of its operating profit, insulating the company from the volatility of discretionary spending,” The Inyo Register shared.
And, while membership drives revenue, the warehouse club‘s famed “treasure hunt” drives traffic to its stores as members don’t know what they might find on any given visit.
Dollar General wants to tap into those two models — membership revenue and visits driven by treasure-hunting customers.
Costco founder Jim Sinegal explained how the treasure hunt model works in an interview with The Wall Street Journal.
“We try to create an attitude that, if you see it, you ought to buy it because chances are it ain’t going to be there next time. You’re going to come in and find that maybe we have some Lucky jeans that we’re selling. You come in the next time and we don’t have those jeans but we have some Coach handbags. That’s the treasure-hunt aspect,” he said.
It’s not just about changing merchandise, but what you’re selling, according to a leading retail analyst.
“The most important element of the treasure hunt is the quality of the merchandise, and Costco delivers. And men, many of whom hate to shop for clothes, can keep their wardrobes up to date while on a quest for steaks or wine. Everyone wins,” retail expert Cathy Hotka wrote on RetailWire.
Dollar General has been testing a new store format, designed to make the retailer more like Costo.
“We have reimagined our traditional store format by creating a new layout in response to what customers have told us they want from their shopping trip. This new format is designed to be more open and inviting, resulting in greater browsing and treasure hunt shopping as customers are exposed to more categories as they navigate the store,” CEO Todd Vasos shared during his company’s fourth-quarter earnings call.
Early results have been promising.
“We tested this new format in a portion of our 2025 remodel projects and are pleased with the incremental sales lift and relative sales outperformance compared to traditional remodels. Ultimately, we believe this format will help drive both increased transactions and ticket as the store provides for an even fuller fill-in trip,” he added.
This model isn’t fully new to Dollar General.
“This need to snatch up an item before it’s gone is exactly what stores are playing to…This tactic involves having a greater variety of products that change often throughout the year. The ‘treasure hunt’ is also effective because e-commerce sites, a big competitor for dollar stores, cannot replicate the deal, Reuters shared, commenting on Dollar General rotating in different merchandise, mostly under $5, to its stores.
While Vasos only shared basic details, he made it clear that Dollar General wants recurring revenue from a membership or subscription program.
“Looking ahead, we have ample opportunity to further drive incremental sales growth through customer experience enhancements, increased customer awareness, and expanded loyalty opportunities, including a planned pilot of a subscription program,” he said during the Q4 earnings call.
Subscription revenue can help retailers build their bottom line and drive recurring revenue, but it’s a challenging space.
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“Most traditional retailers have yet to achieve meaningful success with subscription businesses of their own. Part of the struggle for incumbents is the difficulty of launching a new line of business in an unfamiliar channel and at times failing to nourish their subscription businesses — running it as a niche offering or an experiment,” according to insights from McKinsey & Company analysts.
There are real brand risks tied to adopting a subscription model.
“Failed attempts at building subscription businesses in food, beauty, and retail have been well documented. Such failures often destroy value and, worse, risk creating reputational damage,” the study showed.
Many retail brands have tried subscription services, including Loot Crate, which filed for Chapter 11 bankruptcy; Eleven James, a luxury watch subscription model that has closed; and Stitch Fix, which continues to operate, but has struggled.
Dollar General plans major changes in its stores.Shutterstock ·Shutterstock
As the economy has struggled, Dollar General has benefited from wealthier customers visiting more often. The retailer recently shared its fourth quarter and full-year earnings.
Fourth-quarter net sales increased 5.9% to $10.9 billion.
Fiscal year net sales increased 5.2% to $42.7 billion.
Fourth-quarter same-store sales increased 4.3%.
Fiscal year same-store sales increased 3%.
Fourth-quarter operating profit increased 106.1% to $606.3 million.
Fiscal year operating profit increased 28.6% to $2.2 billion.
Fourth-quarter diluted earnings per share (“EPS”) increased 121.8% to $1.93.
Fiscal year diluted EPS increased 34.1% to $6.85.
Annual cash flow from operations increased 21.3% to $3.6 billion. Source: Dollar General Q4 earnings release
Dollar General reported a strong quarter and year, but its stock had its worst day in two years after it reported on March 12.
“The answer lies in the company’s fiscal 2026 outlook. Management’s guidance implies a meaningful deceleration in the retailer’s core growth engine,” Motley Fool Analyst Daniel Sparks reported.
For fiscal 2026, Dollar General expects net sales growth of 3.7% to 4.2%.
“And, more concerningly, management guided for same-store sales to increase by just 2.2% to 2.7%. This marks a sharp deceleration from the 4.3% same-store sales growth the company just delivered in fiscal Q4. It also trails Dollar General’s 3% full-year same-store sales growth for fiscal 2025,” he added.
