Professors Ajay Patel and Mike Lord Comment on Family Dollar Expansion

Family Dollar ramps up growth, adding 500 stores
Discount retailer’s pitch of low prices in tough economy winning sales

Reposted from Charlotte Business Journal by Jennifer Thomas

Family Dollar Stores Inc. plans to add 500 stores this fiscal year to meet growing demand from consumers shopping for deals in a struggling economy.

The expansion plans mark a nearly 70% increase in store openings over last year when 300 stores were added.

“We’re a growth company and we’ve got a lot of opportunities to grow,” says Keith Gehl, Family Dollar senior vice president of real estate and facilities.

The new stores will allow Matthews-based Family Dollar to appeal to a broader customer base and stay ahead of the market, Gehl says. Poor economic conditions have led more people to seek value and convenience. “I think we’ve found a niche. That broader customer base has come into our store and liked what they’ve seen,” Gehl says. “As that customer base grows, that creates even more opportunities.”

Family Dollar sales in fiscal 2011 — which ended in August — rose to nearly $8.55 billion, up 8.7% over fiscal 2010. Family Dollar notes sales were strongest in the consumables category last year.

It also saw revenue from stores in operation for at least a year grow 5.5%, which the company attributes to an increase in customer traffic.

The retailer anticipates capital expenditures of up to $600 million to support store openings, renovations, store purchases and expansion of the company’s supply chain.

“For retailers to be expanding in this economic environment is pretty ambitious,” says Mike Lord, a management professor at Wake Forest University.

Customers are facing a “new normal” with no end in sight to the ongoing economic strife, says Ajay Patel, professor and GMAC chair in finance at Wake Forest. Patel is also director of the university’s Center for Enterprise Research and Education. “All of a sudden, maybe going to a dollar store is not a bad thing,” Patel says.

That makes store placement critical, Lord says. Family Dollar needs to keep sales up at existing stores, while capturing additional market share.

“To get 500 locations right in one year is much more difficult,” he says.

Family Dollar is targeting 500 stores for the first time in a decade. It last opened 525 stores in 2002, part of a four-year period where the retailer opened 2,002 locations.

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