Recession is Family Dollar's good fortune
12:00 pm
Thu February 5, 2009

Recession is Family Dollar's good fortune

Family Dollar has about 6,600 stores across the country that the company says serve some 14 million customers every week.

The look of these stores is changing. A sample of Family Dollar's future is on display at store in north Charlotte.

"When you walk into the store, you're gonna pretty much see stores within the store," Family Dollar spokesman Josh Braverman says as he leads a tour. So, for instance, health and beauty, color coded signage, very bright. Laundry and cleaners in the back. Home in the back right corner. And then apparel and children's up front on the right.

This store offers a wide line of products, but with smaller variety than much bigger chains. But despite their limitations, Family Dollar stores have seen an increase in sales. Jim Kelly is the company's president and chief operating officer.

"I think a lot of people today are really focusing on being a bit more frugal, either out of necessity or perhaps they've paused to rethink some things as a result of the uncertainty of the economy," Kelly says. " So that search for value is something they're finding at Family Dollar and as a result of that more and more new customers are coming in."

In fact, Family Dollar's performance actually improved as the economy got worse. Last year, the price of Family Dollar stock jumped by 36 percent.

Last fall, when the economy's nosedive accelerated, Family Dollar's income increased by 14 percent over the year before. And dividends have actually increased, too.

None of this surprised Charles Bodkin, a retail and marketing professor at UNC Charlotte's Belk College of Business.

"If you just think about the whole economy, as basically dropping their income, well that drops the level of the type of store that you want to look at and shop at. Everyone's looking to save some money now. There's a lot of concern out there," Bodkin says.

What Bodkin is referring to a trend some call "trading down". When the economy sours, consumers change their shopping habits. Instead of shopping at say, Target, they'll go to other stores in search of better deals. 26-year-old Telea Vinson is a regular at Family Dollar.

"It's not where you shop, it's what you get. It's the value of what you're paying for," she says. "If it's the same thing you paying for at Wal-Mart, you might as well as come here and get it at a better deal."

That's not to say Family Dollar always has the lowest price. But the company aims to be priced competitively with bigger stores, and win over customers by offering more convenience. Parking is usually simple. Stores are smaller and checkout lines are usually short. Bodkin says it's working. Besides getting more business from their regular customers, the professor also thinks chains like Family Dollar are also seeing in influx of new customers.

"I had some friends who they would not be seen in these stores because of the stigma that was attached to it. 'Oh I can't go that low priced'. But you see quite a few people now, quite a few friends shopping in the Dollar General, Dollar Tree, Family Dollar," he says.

As consumers have cut back their spending on non-essential items, Family Dollar has decreased its offerings of things like clothes and shoes. At the same time, stores are offering more of the things people buy no matter what shape the economy is in, like food and household products.
Daniel Butler is vice president of retail operations at the National Retail Federation. He says sales of those items are driving small box stores' recent success.

"It's kind of basic items that people say you know, guest shampoo for the guest bathroom, guest soap for the guest bathroom, dishwashing detergent - things that people use everyday that they don't want to necessarily spend a lot of money on but they do want and need."

But what happens when the economy rebounds? Do shoppers go back to their old ways? It depends on who you ask.

Some, like UNC Charlotte's Bodkin, say consumers will return to their old, sometimes reckless shopping habits.

But Kelly, the Family Dollar president, says some of the company's biggest gains have come during times of economic recovery during its 50-year history.

"My expectation is that that trend will continue, that people who come to us for the first time seeking value will find that value. And they'll continue to come," he says.

And Kelly says just because people will have more money to spend, doesn't mean they'll want to pay more for items they now know they can buy for less.

Tags: