Family Dollar Makes Progress on Several Fronts
By George Anderson
Family Dollar Stores said it is pleased with the progress it has made in reducing shrink (and building profits) in its urban stores and finding overseas manufacturers to source its “treasure hunt assortment” of items that help drive consumer traffic into its stores.
The nation’s second largest dollar store chain based on sales said it introduced its “urban initiative” program last year with the intention of reducing staff turnover and cutting into losses caused by product shrinkage.
According to The Wall Street Journal, Family Dollar’s initiative included adding more district-level managers to keep a closer eye on stores; securing frequently stolen goods in locked display cases; and more effective pre-employment screening.
Chairman and Chief Executive Howard Levine said the changes the company has made, including the installation of a loss-prevention system that identifies signs of theft such as a large number of product returns, has worked.
“Year to date, approximately 80 percent of the urban-initiative markets are more profitable compared to last year,” he said. “And, more importantly, two thirds of these markets are achieving higher profit margins.”
Family Dollar is also looking to take advantage of overseas sourcing to improve store sales and keep costs under control. The result, the company hopes, will be an improved bottom line.
Mr. Levine told analysts at the Lehman Brothers Ninth Annual Retail Seminar that the company now sources about 30 percent of the goods sold in its stores from suppliers in other countries.
The company, he said, was pleased with results for last holiday season where the company took advantage of opportunities such as product closeouts to deliver value to its price-conscious consumers.
“While we’ve developed a lot of expertise and experiences overseas,” he said, “we still think we have a lot more coming to us to get more fully developed in the whole global procurement area.”
Moderator’s Comment: What lessons are there for dollar stores and retailers in other channels from what Family Dollar is doing with its business? Where
do you see the greatest opportunity for the retailer to improve its top and bottom line performance? –
George Anderson – Moderator
Am I missing something? Aren’t the issues being discussed regarding Family Dollar the same issues that most retailers face? Isn’t Family Dollar approaching it the in a similar fashion to what Wal-Mart and others are? Maybe they were just late to the party or just late to change and adapt.
Family Dollar and other Dollar Store operators have a few more challenging obstacles to overcome in their business model to control shrink. The number of employees working a store is very limited (sometimes only a manager and one employee), and requires someone to be in front by the checkout area at all times. Many of the markets and customers they serve are in higher shrink index areas, and the size of the stores and focus on lower price points requires smaller packs, and that adds up to the potential for higher internal and external shrink to occur vs. other outlets and channels.
The initiatives and results being put in place are a great step towards reducing this challenge to their bottom line, and a key may be to look at a greater rewards system for employees by store that encourages more “self management” and greater focus on loss prevention. F.D. has a terrific leadership team in place, so I believe they will continue to show improvements. Now, how do they improve the last 100 ft. of product flow to get the product out from the backrooms and onto the shelf more effectively?
My crystal ball, cloudy though it might be, tells me there are few lessons that other retailers will learn from what Family Dollar is currently doing to survive.
The greatest opportunity for improving bottom-line performance is for the “Extreme Value Channel” to continue their assault on the low price general merchandise business that Wal-Mart and Kmart have abandoned. Kmart is dying and Wal-Mart appears ready to walk away from “Lowest prices everyday.” They are also moving from GM focused traditional discount outlets to fewer supercenter units within a given geography. They are counting on the draw of food to pull consumers in from a larger shopping ring, and data so far says they are pulling it off. But they are also leaving a hole in some local communities that a 9,000 sq. ft. box filled with extreme value necessities could fill nicely. Especially for that “Quick Trip for a few items” that Unilever’s research says make up 42% of all shopping trips!
Certainly better sourcing and shrink control are excellent ways to improve profits. Even more effective: (1) merge with other financially strong dollar chain players and (2) agree to radically reduce opening new stores until the oversupply of locations ends (3 years? 5 years?). There’s nothing like a reduction of competition and cannibalization to improve profits and stock prices. Visionary leadership is desperately needed to reduce the excessive destructive growth in the dollar store channel. Low location growth segments in retailing often have the best financials.
Family Dollar is facing what retailers in general are facing. Sad truth is that it can’t trust its customers. Most are at the bottom rungs of the economic food chain, and stealing is what they do.
Concepts such as A&P’s Food Basics and BigLots are examples of how traditional merchandising can refocus itself. Combining food and closeouts makes these stores more exciting. Food Basics with its emphasis on freshness and low prices and BigLots with its ever-changing inventory make shopping fun again and bring the consumer away with more food and necessities while spending less money. If only every shopping experience could be like that.