Those whose greenbacks feature George and Abe rather than Andrew and Ulysses may very well shop at Fred's. Generally serving customers with modest or fixed incomes, Fred's operates more than 700 discount stores in some 15 states, primarily in small- to medium-sized towns in the Southeast. The stores carry more than 12,000 brand-name, off-brand, and private-label products, including pharmaceuticals, household goods, clothing and linens, food and tobacco items, health and beauty aids, and paper and cleaning supplies. About half of its stores have full-service pharmacies. The company also provides goods and services to about two dozen franchised Fred's stores. Fred's was founded in 1947.
Memphis-based Fred's operates discount general merchandise stores in 15 states, primarily located in the Southeast. More than a third of the stores are in Mississippi and Georgia.
In addition to its main chain, Fred’s owns and operates two other retail chains. Getwell Drug & Dollar pharmacies, with five locations across Alabama, Tennessee, Georgia, and Mississippi, offers an expanded over-the-counter medication selection, individualized patient care, and more than 1,700 $1 items. Its newest store concept, Yazoo Trading Company, sells hardware, auto, and pet and animal supplies at five stores in Alabama, Tennessee, and Georgia.
Sales and Marketing
Advertising and promotion costs have averaged about 1% of net sales over the past three years. Fred's relies on direct mail and newspaper ads to get its value message out. The company added email and social media to its marketing efforts in 2011.
Fred's reported nearly $2 billion in sales in fiscal 2013 (ended January), a 4% increase versus the prior year. Net income fell 11% over the same period to $29.6 million. The sales gain was due primarily to the inclusion of a 53rd week in fiscal 2013. Excluding the extra week, sales increased a more modest 2% due to the addition of new stores. Same-store sales declined 1%. The retailer blamed continued economic weakness across the Southeast and a continuing shift in pharmacy department sales from branded to generic drugs. Also, same-store sales of tobacco declined by double digits in the first half of the fiscal year.
The decline in net income was due to increased expenses related to pharmacy department growth and other pharmacy operations.
Fred's seeks to combine the appeal of a dollar store, drugstore, and mass merchant, all under one relatively-small roof. (Its full-size stores average about 15,000 square feet.) To differentiate itself from other small-box discount retailers, including its fast-growing dollar store competition, Fred's looks to five merchandise categories: home, celebration, pet, pharmacy, and paper and chemical. Key among them is pharmacy, a proven driver of customer trips and loyalty for Fred's. Indeed, pharmacy sales account for more than 35% of the chain's total sales. Pharmacy department sales (up 8.5% in fiscal 2013) have outperformed overall sales growth in recent years. To grow its pharmacy business, Fred's has been acquiring independent pharmacies and prescription files in markets where it already does business. (It also followed Wal-Mart's lead by lowering prices on generic drugs to $4 a prescription.) Drug wholesaler AmerisourceBergen is the chain's primary supplier. Indeed, Fred's purchases 40% of all its products from AmerisourceBergen.
After adding about two dozen new pharmacies in fiscal 2013, Fred's plans to open 25 to 30 new pharmacies, and approximately 20 to 25 stores overall in fiscal 2014 (ends January). Store growth will be focused on its existing small-to-medium-sized markets (About 85% of Fred's stores are located in markets with populations of 15,000 or fewer people.) The company continues to expand its line of private-label products, which are generally more profitable for retailers than name brands. Its FRED's Brand products account for nearly 10% of sales, up from just 3% five years ago.
Heartland Advisors owns about 13% of the company's stock and is its largest shareholder. Wellington Management Co. owns about 10%.