Dollar, dollar, who’s got the Dollar? Family Dollar has certainly been through the retail ringer over the past decade or so. Ten years ago, it was the object of the affection of two — count ‘em two — retail giants when both Dollar Tree and Dollar General tried to buy it, upping the ante all the way to around $9 billion when the former won out over the latter.
That was the high point, because just about as soon as the deal was done Dollar Tree got buyer’s remorse, wondering what in the world it was thinking. Family Dollar was a retail wreck with an old store fleet, a bizarro merchandise mix and housekeeping standards that even by dollar-store standards were abysmal. Dollar Tree went to work trying to fix its new brand while, we suspect, Dollar General management said, “Whew, we sure dodged a bullet that time.” Stores opened, stores closed (in fairness, that is the dollar model with constant turnover in fleets), but the count stayed in the 7,000-door range, give or take a couple of hundred.
Maybe Family Dollar needs to buy a zombie brand like Bed Bath & Beyond or Sears for linchpin products that consumers still value and can’t find anywhere else. These could be the cornerstones of a differentiated merchandise mix that makes Family Dollar stand out from the competition.
Dialing for Dollars
Dollar Tree tried a little of this and a little of that with combo stores, new merchandise, and attempted to clean up the messes. But in hindsight, it was just too little, too late. After paying all that money, they threw in the towel (at $2.99, you could read through the cheap terrycloth) and in March announced they were selling it off to private equity investors. I mean, who else buys distressed retailers for barely $1 billion? That’s eight billion fewer dollars than what they paid for it.
The new owners — Brigade Capital Management and Macellum Capital Management — kept on the top management team even as it trotted out the usual PE-speak that curiously talked about “new management,” making one wonder if they even consulted the new org chart. On top of that chart is Duncan MacNaughton, chairman and CEO (he was president and COO under Dollar Tree). When the deal closed, he said it was “a chance to return to our roots, refocus on our unique strengths and build a future tailored to the communities we serve.” The corporate release also mentioned continuing to “serve the underserved.” Counter to all the talk about going back to its roots, the statement added it would be a “new Family Dollar.” There was also a lot of growth “acceleration,” faster “innovation,” unlocking “full potential,” and “delivering value, convenience and discovery to our customers every day” babble. GPT couldn’t have done a better job of spitting out all the cliches in the book.
Five Easy Pieces
So, what do all these vagaries, platitudes and gibberish actually mean when it comes down to running a retail business? We identified five areas Family Dollar needs to focus on if it really wants to fix this thing.
- Clean Up the Stores
Dollar stores are, by nature, messy places. With short staff, crowded footprints, constant traffic and high turnover (in both employees and inventory), they are hard to keep neat and tidy. But cleanliness is table stakes in the retail business these days. Give the consumer a reason to go somewhere else because they can’t find what they’re looking for, or it’s just a crummy, dirty place to shop, and they will. Don’t say you can’t keep the store clean; deep discounters like Aldi, HomeGoods and even Ollie’s are far better at housekeeping on a consistent basis. This is the most basic of basics, get this right and you’ve gone a long way towards fixing what’s broken.
- Get the Assortments Right
Yes, salty snacks and two-liter bottles of soda are always going to be the staples of any good dollar store, but there’s so much more Family’s new owners could be doing. Walmart has shown that even a deep discount customer wants something a little stylish with attractive packaging and aspirational aesthetics. It doesn’t cost any more to make a good-looking dish towel than it does to make an ugly one, and — guess what? — you can charge a little more for it, too.
- Don’t Be Afraid of Price Points
Especially these days, the “value” customer is stretched and needs to be thrifty. But that doesn’t mean price points are sacrosanct and can’t be tweaked. Other dollar chains have proven that point, successfully upping their retail games by baby steps and getting away with it. Sure, keep the loss leaders, the untouchables, and anything else that must be maintained; just cut yourself some slack on other parts of your assortment.
- Look for the Gaps
With the exits of some key retail chains like Party City and Joanne, and cutbacks in the number of drug store locations by the two dominant chains — CVS and Walgreens — there are incredible opportunities to pick up market share in select categories. Things like party merchandise, crafts, home sewing and HBA consumables are all in play right now, and with a fresh start, Family Dollar should be able to move into these categories faster than its dollar brethren.
- Create Some Icons
Costco has its $1.50 hot dog combos and $4.99 rotisserie chickens. Gap always has pocket Ts. Milk, bread and eggs (well, mostly) are always go-to’s at grocery chains. A Ralph Lauren store always has a big assortment of its polo shirts. Family Dollar needs to find some foundational products that are always in stock and offered at an unbeatable price. These are icons that a shopper knows they can always get and will make a special trip to the store for. This is not rocket science. It’s not even retail science. It’s just plain old common sense, and most dollar stores are such a confusing jumble of assorted stuff that the customer never really knows whether what they came in for is actually there. Maybe Family Dollar needs to buy a zombie brand like Bed Bath & Beyond or Sears for linchpin products that consumers still value and can’t find anywhere else. These could be the cornerstones of a differentiated merchandise mix that makes Family Dollar stand out from the competition.
Fire Sales Are the Mother of Invention
This is the time for Family Dollar to make changes. Big changes. If the new owners try to tweak a little bit here and a little bit there, they will tweak this thing to death. Yes, it’s probably loaded up the wazoo with debt. And yes, management might not be willing to admit it’s time to try something different. But all of them know the same-old ain’t working anymore. This is their time to blow this thing up and really start bringing in new Dollars.
Dollar stores are on the line: Go bold or go away.
