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Family Dollar working to appeal to more trade-down shoppers with new merchandising tactics

Charlotte, N.C. – Broadening its appeal to a diverse customer base that includes both “trade-down” and “trade-up” types, pairing non-discretionary with discretionary purchases to increase sales and basket sizes, and expanding global direct sourcing capabilities are some of the efforts Family Dollar is undertaking as it grows its business going forward.

During the company’s presentation at its analyst and investor conference today, Family Dollar executives focused more on the longer term.

Among the top strategies on the 6,600-unit retailer’s list going forward is to tap on the rising opportunity to attract and retain “trade-down” lower-middle income shoppers to its stores, which are present in 44 states.

“Where our opportunity here is through broadening the appeal for this customer,” said Jim Kelly, president and coo. “She is coming to our store but not shopping the whole store. She tends to be very selective. By broadening the appeal, it means expanding her shopping today while in the store and perhaps increasing her frequency of her trips.”

Through research, Family Dollar found that over the past year, it has seen more business stemming from its newer, trade-down customer base.

In the 52 weeks ended June 2008, most of the retailer’s new sales growth came from its core customer – typically a female head-of-the household who is “poor and just getting by” and earns an annual income of less than $30,000 from her blue-collar job.

But in the following 52-week period, through June 2009, “we saw a little more balance,” Kelly said. “Still most of our incremental sales were coming from our core, but some was coming from the trade-down customer,” who he described as earning a $70,000 or slightly less annual income and a shaving an established family with school-aged children. She “prefers national brands and looks for sales. She, too, has been impacted by economy.” And she has an increasingly “astute and more aggressive” eye for value.

Kelly added that Family Dollar’s trade down customer has historically accounted for a third of sales. But the recent data shows that in the past year these shoppers represent slightly more than a third of the sales.

“It’s not dramatic, but it is an indicator that as economy continues on its depressed stage, there remains an opportunity for trade-down customer,” he explained.

As the trade-down customer more often makes Family Dollar a preferred shopping destination, the retailer is actively figuring out ways to layer in discretionary purchases with non-discretionary types to increase basket size, said Dorlisa Flur, evp, chief merchandising officer.

 “We have increased our breadth and depth of knowledge over time to better position our stores and assortments to serve her,” she said.

Family Dollar divvies its business into six broad business groups – “and not all of them have same appeal across all shoppers,” Flur explained.

At one extreme are household goods, such as laundry detergent, cleaners and paper goods. “We have built credibility with national brands here,” she said, “and we will continue to use these as foundation to draw a broad set of shoppers.”

At the other end of those six businesses is apparel, which for Family Dollar tends to attract mostly lower-income ethnic shoppers. “Our apparel team has a repositioning effort that we’ll start to see in spring. They are working on the styling to appeal to a more mainstream shopper.”

The food category, she said, straddles both sides with established credibility in candy and snacks but not across the board. To improve, Family Dollar is making enhancements that will soon be evident at the store level, Flur said.

Family Dollar’s research finds that every customer basket contains at least one food item, so the retailer is building on that. “How do we get other things to get into those baskets? Discretionary tend to drive larger basket and less frequent. And so the real opportunity is to try to create a more systematic pairing of these,” she said.

To address the issue, Family Dollar, she said, is trying to create a more systematic pairing of nondiscretionary and discretionary items. The company was pleased with the results from a “Baby Solutions” display that merchandises baby consumables with other baby-related products.

Also on Family Dollars long-term agenda is the growth of its global sourcing initiative. The retailer earlier this year brought in a new team and began building a new infrastructure with an import center and new technological capabilities.

While Family Dollar has historically tended to work primarily through agents and importers and kept its focus on Asia, the new global sourcing team is “outlining a road map that over the coming years will take us to much more of a direct sourcing model and help us diversify our mix,” she said. “We want to find low-cost, more interesting merchandise and address lead times.”

 

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