Inside This Issue - News
Family Dollar retools
January 27th, 2014
MATTHEWS, N.C. – With the exit of Michael Bloom as president and chief operating officer and the promotion of Jason Reiser to executive vice president and chief merchandising officer, Family Dollar Stores Inc. is focused on getting back on track after posting disappointing results for the first quarter of fiscal 2014.
Bloom’s departure and Reiser’s appointment were announced the same day Family Dollar reported a drop in both net income and same-store sales for the initial quarter. Underlying the 2.9% decrease in same-store sales were declines in both customer traffic and average transaction.
During a conference call with analysts, chairman and chief executive officer Howard Levine discussed in detail where he felt the chain had gone wrong and enumerated the major initiatives under way to improve its financial performance. Levine said he felt that in the course of implementing numerous merchandising and marketing changes in recent years, Family Dollar had strayed from its core focus on serving its core, value-conscious customer.
"Over the last few years we have increasingly used circulars to drive traffic and shape our price image," he explained. "Going forward, our priorities are to return to our EDLP (everyday-low price) strategy while optimizing our marketing tools, including our circulars, radio and digital to drive traffic. We’re not eliminating our use of circulars, but we plan to reduce the frequency and utilize them when our customers are most responsive."
In response to analysts’ questions, Levine pointed out that Family Dollar ran 11 promotions during the 13-week first quarter in an effort to drive flagging customer traffic. "Our model is not built to maintain that level of promotional activity," he said. "We have small stores. We have limited labor. There are a lot of logistical challenges to getting ads set and removing them. It was very difficult to execute and get the returns on those circulars with that kind of frequency."
Going forward, he said, the priority is to make sure the retailer’s prices are competitive and to highlight that fact in communicating with its shoppers, through in-store signage as well as advertising vehicles. To do that, Family Dollar will "invest significantly" in pricing to deliver everyday value and refurbish its price image. "How we communicate and reinforce our great values and assortment changes with customers is as important to our success as the actual investments we make," Levine added.
In 2012 Family Dollar made substantial product assortment changes, adding about 1,000 new items in food and health and beauty aids as well as introducing tobacco. The additions involved significant changes in layout and fixturing throughout the chain, all of which was accomplished in the course of about four months.
While the changes did increase shopping frequency and market share, Levine noted that the greater share of consumables in the sales mix put pressure on gross margins, while the overload on store operations teams caused a surge in store manager turnover as well as higher shrinkage and lower inventory productivity. Consequently, in fiscal 2013 the company called a halt to layout and assortment changes while employees — and customers — adjusted to the alterations.
As a result, Levine said, gross margin stabilized, shrinkage began to improve, and store manager turnover has eased. He made clear, however, that the assortment changes that have been made will not be reversed and, in fact, further refinements will be introduced this quarter.
Leading the modified merchandising approach will be Reiser, who joined Family Dollar last July as senior vice president of merchandising, with oversight of health, beauty, personal care and household products. In October, he was promoted to lead merchandising officer with responsibility for all merchandising. "Jason knows our core customer and how important value is to her," said Levine. "His knowledge of the value-conscious customer, combined with his leadership style and merchandise experience, make him an excellent choice for this important role."