Penny-pinching single moms are drawn to Family Dollar. The nation's #2 dollar store (behind Dollar General) targets forty-something women shopping for a family earning less than $40,000 a year. It operates about 8,200 stores across some 45 states and Washington, DC. Consumables, (food, health and beauty aids, and household items) account for more than 70% of sales; stores also sell apparel, shoes, and linens. Family Dollar runs small neighborhood stores near its fixed-, low- and middle-income customers in rural and urban areas. Most merchandise costs less than $10. Family Dollar was founded in 1959 by the father of CEO Howard Levine. Family Dollar has agreed to be acquired by rival Dollar Tree.
North Carolina-based Family Dollar Stores has shops in 46 states (it entered Montana in 2013), and the District of Columbia. Texas, home to more than 1,000 Family Dollar stores, is the chain's single largest market, followed by Florida with about 570 stores.
Sales and Marketing
Family Dollar Stores spent $18.9 million on advertising in fiscal 2013 (ended August), down from $19.6 million in 2012. Manufacturers or distributors ship about 20% of the chain's merchandise directly to its stores. The balance is shipped from one of the company's 11 distribution centers.
The retailer's fiscal 2013 (ended August) sales increased 11% versus the prior year to $10.4 billion, while net income rose 5% to $443.5 million over the same period. The double-digit sales growth was driven by the addition of new stores and increasing sales at older ones. Same-store sales increased 3% in fiscal 2013 versus the prior year (down from 4.5% and 5.5% in the previous two annual comparisons). The downward trend in same-store sales suggests the fast-growing chain pay a bit more attention to merchandising. Consumables -- a fast-growing category for the retailer -- accounted for 72% of total sales in fiscal 2013, compared to 69% the previous year. Customers made more trips to Family Dollar Stores in 2013 and their spending rose to an average of $10.50 per visit.
Dollar Stores are a fast-growing, profitable business -- both during and after the deep recession -- as Family Dollar Stores' 10-year run of increasing sales demonstrates. Indeed, the chain's sales have doubled over the past decade, while net income has increased in each of the past five years. While Family Dollar Stores and its rivals have clearly benefitted from the economic pain of many working families, the company has seen competition for those dollars increase.
After shunning a hostile advance in 2011, Family Dollar reaffirmed its own strategic growth plans. Since then, the company has struggled and was subject to pressure from activist investor Carl Icahn to sell itself. In July 2014, it agreed to be acquired by Dollar Tree in an $8.5 billion cash-and-stock deal that would create a company with more than 13,000 stores and some $18 billion in sales. (Shareholders of Family Dollar will receive $74.50 per share, a substantial premium to the closing price when the deal was announced, and will own about 13% to 15% of the combined company.) Together Dollar Tree and Family Dollar expect to realize annual savings of about $300 million per year. In August, Dollar General topped Dollar Tree's bid with a an all-cash offer of $78.50, in a transaction valued at $9.7 billion.
Prior to its deal with Dollar Tree. Family Dollar believed that its shareholders were best served through new store openings and remodeling existing locations. To that end, in fiscal 2013, the company opened 500 new stores, including its first location in Montana, and doubled the number of stores it operates in California. Going forward, the fast-growing chain plans to open 525 new stores in fiscal 2014 (ends August). By comparison, rival Dollar General opened its 11,000th store in October 2013, the same month Family Dollar opened its 8,000th location.
In the face of increased competition from mass discounters, such as Wal-Mart, the company has also increased purchases of lower-margin consumables and avoided higher-priced merchandise. Its food assortment includes milk and other perishables, as well as more quick-prep and ready-to-eat products. In a move designed to broaden its grocery offering, including refrigerated and frozen food, Family Dollar in spring 2012 formed a strategic partnership with grocery distributor McLane. Family Dollar has shifted to an "everyday low price" strategy, as opposed to short-lived promotional advertising, while increasing the number of brand-name goods it carries. Also, after learning that smokers make more shopping trips per year, the company added tobacco products to its offering in fiscal 2012 with the intent of capturing both tobacco sales and spill over to other merchandise categories. The company lures budget shoppers with an appetite for national brands by offering merchandise from leading manufacturers such as Procter & Gamble, Coca-Cola, Nestlé, and PepsiCo.