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Building the Family Image

WASHINGTON -- Having recaptured lost sales after a rocky period in the late Eighties, officials at Family Dollar Stores Inc. are now setting out to fine-tune the discounter's strategy.<BR><BR>Their goal: to solidify the chain's position as a...

WASHINGTON — Having recaptured lost sales after a rocky period in the late Eighties, officials at Family Dollar Stores Inc. are now setting out to fine-tune the discounter’s strategy.

Their goal: to solidify the chain’s position as a neighborhood convenience discount store for low- and low-middle income shoppers.

On Family Dollar’s agenda:

  • Continued renovation of stores using a snappier new prototype, which began in the fall of 1991.

  • Emphasis on fashion apparel, highlighting such resources as Center Aisle and Chic. Basics, however, still account for 65 percent of apparel sales.

  • Phasing out low-margin items, including motor oil, tools and paints, in favor of higher-ticket items such as boom-box stereos and toys, which deliver higher returns. Though a majority of the store’s 6,000 items are priced under $17.99, the retailer has expanded price points on certain items, like watches, which now go up to $25.

  • The opening of a new distribution center in West Memphis, Ark., slated for early spring. This center and the addition of point-of-sale scanning registers chainwide last October are expected to improve operating profit margins over the next few years.

  • Acceleration of its expansion. After winding up the 1993 fiscal year, ended Aug. 31, with a net gain of 165 new units, officials at the 34-year-old company plan to step up the pace, opening at least 165 units in fiscal 1994. By the end of next year, the chain is expected to grow to 2,200 units, with sales hitting $1.5 billion. Sales for fiscal 1993 climbed 12 percent to $1.29 billion from $1.16 billion, and same-store sales increased 3.9 percent. The company operates 2,091 stores.
“We have a lot of opportunities for growth, given the rash of bankruptcies among regional discount chains,” said Peter J. Hayes, president and chief operating officer of the Matthews, N.C.-based company, who was interviewed by telephone.

Analysts point out that the company will benefit from the downscaling of Woolworth’s, which shuttered 750 U.S. units at the end of last year.

“I bet they’re mapping their expansion strategy as we speak,” said Ken Gassman, a retail analyst at Davenport & Co., Richmond, Va.

Hayes said the bulk of new stores will be in the New England market, where existing stores have generated above-average earnings.

“We can get into these sites easily because of our sheer size and the fact that we lease the stores,” he said, although no sites are set yet.

The company owns only 6 percent of its stores. Leasing is attractive, according to a company spokesman, because the retailer does not have to commit a large capital expenditure, and it is locked in for only five to 10 years.

Hayes was hired in 1991 as part of a new management team to shake up the retailer’s flat, comparable-store sales and sagging profit margins during its rocky 1986-89 period. During that time, sales per store stagnated in the $470,00-$500,000-per-year range. A major factor in its slump was management’s complacency on pricing, just as its behemoth competitors — including Kmart Corp. and Wal-Mart Stores Inc. — were becoming more aggressive.

Since 1990, Family Dollar has rebounded, posting double-digit, comparable-store sales gains, while average store revenues jumped to over $640,000, though the pace in the first few months of 1993 eased.

Nevertheless, analysts are bullish.

“The pace of improvement is still impressive and quite sustainable,” said Gassman, noting the merchandising enhancements and the additional rollout of the chain’s store-remodeling program.

Split down the middle by a main aisle, the new store prototype, which ranges in size from 6,000 to 8,000 square feet, prominently features apparel, mainly casual separates and accessories, on the right side.

The left side of the store features hard goods, from spatulas to lamps.

Analysts said stores that have already been converted have had sales increases averaging 14 percent in the first year.

As part of its new strategy, color consulting is now being used — hunter green is the current hot hue.

Bestsellers this season include fashion fleece tops and bottoms — some 84,000 units from Gitano have sold at $8.99. Company officials are also increasing the assortment of large sizes, from 15 to 20 percent over the next few years, and beefing up children’s wear.

With these changes now in place, Family Dollar officials are undaunted about competition.

“We may not be able to outmerchandise Kmart and Wal-Mart, but we can outconvenience them,” said Hayes. Unlike its larger competitors, which are about 100,000 square feet, Family Dollar stores are much smaller, enabling them to be more user-friendly for shoppers with limited pocketbooks, he added.

“With not much disposable income, our customers shop more frequently and buy closer to their needs,” Hayes said, noting that its average customer shops at the store more than twice each week. The units draw from a trading area of about three to five miles.

“While our competitors are typically located in the outskirts of town,” he said, “we are conveniently located mostly in downtown centers.”

The company said in December it began a program of price reductions on selected items in approximately 400 stores located in its most competitive markets.

This program was solely advertised through the use of in-store signs, but beginning this month, circulars promoting the program will be distributed in these markets.