Family Dollar Steps Up Store Expansion, Renovation

MARK HAMSTRA

MATTHEWS, N.C. — Family Dollar here is ramping up new-store expansion and rolling out an aggressive store-renovation effort that seeks to leverage enhanced merchandising and supply chain capabilities.

During a conference call with analysts discussing results for the recently ended fiscal year, the dollar-store chain said it would open about 300 new stores in fiscal 2011 — a 50% increase over openings in fiscal 2010. In addition, the company is seeking to build a pipeline of new-store development that will return the company to square footage growth of 5% to 7% over the next two to three years.

In a subsequent meeting with analysts and investors in New York, Howard R. Levine, chairman and chief executive officer, explained that the chain had previously pulled back on expansion to focus on improving systems and processes.

“We created a more strategic approach to market development, and we strengthened our site selection approval processes,” he said. “As a result, our new store performance has improved significantly over the last years.”

In addition, he said, “the softening of the real estate market provides us with what we believe to be more opportunities, so we're certainly going to leverage that.”

R. James Kelly, president, said the company would concentrate most of its growth in its current 44-state operating region, but would also begin looking beyond, including an expansion into California.

The store renovations, at a cost of $100,000 to $130,000 per store, include expansion of the areas dedicated to food, he pointed out.

“Since 2005, we've expanded our food four different times,” he said. “We've roughly doubled the linear space allocated to food during that time. This new format will further expand food as we target that all-important midweek fill-in trip of our customers. In addition to the expansion of dry goods, we will be doubling our capacity in the cooler area, moving from five to 10 coolers.”

The renovations, which also will include new signage, painting and repairs, take about two to three weeks per store, although the company is seeking to accelerate that timeframe to minimize disruption for customers.

“We've now completed 131 of these, and we are finding that the disruption to the customer has been less than we had initially planned,” Kelly noted.

The company expects to renovate 600 to 800 stores with the new look during the current fiscal year.

Levine described the renovations as incorporating a “racetrack flow” with a “store-within-a-store presentation” and more customer-friendly adjacencies and improved navigational signage.

“With the goal of enhancing customer sight lines while also increasing merchandising capacity, we are utilizing new fixtures that are designed to simplify restocking and recovery while also providing greater flexibility for future merchandising mix shifts,” he said.

Capital expenditures, which totaled about $212 million last year, will increase to about $300 million in fiscal 2011, the company projected.

As previously reported, Family Dollar is also ramping up its private-brand penetration throughout the store, which currently stands at 20% of sales overall.

“The consumable sales area represents a particularly vibrant opportunity,” Kelly pointed out. “Two years ago, our private brand represented roughly 10% of our consumable sales. Over the last several years we've added [over 500] national brands to our assortment. Well, notwithstanding that we have moved our private brands from 10% of consumables to 14% in the last several years, with a target of 20-plus percent.”

Family Dollar revealed its plans for expansion and renovations after reporting better-than-expected sales and earnings growth for the fourth quarter and fiscal year.

Net income for the quarter, which ended Aug. 28, was up 23%, to $74 million, on sales gains of 8%, to $1.96 billion. Comparable-store sales were up 6.1% in the quarter, reflecting an increase in customer traffic.

Sales in the quarter were strongest in consumables, the company said.

For the year, net income increased 23%, to $358.1 million, on a 6.3% gain in sales, to $7.97 billion. Comparable-store sales were up 4.8% for the year, with number of transactions up and value per transaction approximately flat for the year.

During fiscal 2010, the company opened 200 new stores and closed 70 stores.

“The environment, while challenging, has given us a lot of confidence that we've navigated and survived and operated very nicely through what was the toughest economy in many, many years,” said Levine. “So we feel very good about the opportunities. But at the end of the day, it's all about execution. So we're going to be focused very hard on executing these programs and looking forward to reaching our goals.”