Professor Mike Lord Says Family Dollar’s Expansion Into Comsumable-Products Arena Makes Sense

2.17.2012 Article, Faculty News, Retail

Changes in mix at Family Dollar
Reposted from Charlotte Business Journal

If you're in a rush to pick up milk and bread, Family Dollar wants your business.

The same is true if you're shopping for cookies, pasta or dozens of other common grocery items — as well as cosmetics and health-care items such as contact-lens solution.

The discount retailer is preparing to undergo a subtle but significant shift of the merchandising space in its stores. It will devote half of the square footage to sales of consumable goods — food and health-and-beauty items.

That will be up from the 30% to 35% of the space the company’s stores currently allocate for such products.

Mike Bloom, Family Dollar president and chief operating officer, says the remaining retail space will be dedicated to apparel, home goods and general merchandise, including seasonal, pet-related and automotive products.

"Those businesses are really important to us, but they’re not businesses that are top of mind right now for our consumers," he says. "We're adjusting to meet their needs."

Most of the retailer's stores measure about 7,000 square feet.

Matthews-based Family Dollar Stores Inc. will make the changes during the next few months, completing them by early summer.

Family Dollar declines to disclose what it’s spending on the upgrades. But it notes some of the changes will be completed as part of 1,000 store renovations planned for the current fiscal year, which began Aug. 28.

The retailer has said those renovations will cost between $100,000 and $130,000 per store.

During fiscal 2011, Family Dollar's sales of consumable goods jumped 11.1% from the previous year to nearly $5.7 billion. And sales of consumable items rose 11.4% to $1.5 billion during Family Dollar's fiscal first quarter, which ended Nov. 26. That marked the fifth consecutive quarter of double-digit sales growth in that category.

Overall sales for the first quarter totaled nearly $2.15 billion, up nearly 7.6% from a year earlier.

Bloom says the sharpened focus on consumable goods should help drive traffic to its stores, which have seen a big boost in sales and income since the economic downturn hit in 2008.

Besides offering discounted prices, Family Dollar can fill in the gaps for shoppers between major shopping trips, he says.

"Our customer continues to be challenged economically," Bloom notes.

Family Dollar's expansion in the consumable-products arena makes sense because consumers are already choosing the retailer for its low-cost items and convenient locations, says Mike Lord, a business-management professor at Wake Forest University in Winston-Salem.

"It's a reasonable bet to make to try to take better advantage of their growing footprint," he says. "Why not try to capture a few extra dollars?"

Family Dollar has more than 7,100 locations in 45 states. But it plans to add 500 stores this fiscal year. The retailer also is broadening its territory, opening its first stores in California in November.

Lord notes the retail market remains highly competitive as the economy continues to limp toward recovery. "Getting the mix (of goods) right is critical," he says.

Family Dollar began expanding its food offerings in 2005 by installing the first coolers in its stores. That allowed for sales of perishable items such as milk and eggs.

The chain has continued to add refrigeration and freezer capacity, enabling its stores to sell ice cream and other frozen foods. With the pending makeovers, Family Dollar's stores will have 10 to 20 cooler units, up from five initially, Bloom says.

And the company will devote additional shelves to health-and-beauty aids, making more efficient use of space, he says.

The health-and-beauty and food areas will move to the sides of the stores to accommodate future growth.

Family Dollar’s product mix will continue to evolve, based on customer demand, Bloom adds. "It's all about being relevant for our consumer."