Family Dollar maintains discretionary offerings, but taking more "cautious" approach

Retail Editor 2, April 25, 2012

New York - As its lower-income core customer base continues to be challenged by the economy, Family Dollar is increasingly adopting a guarded approach to its discretionary categories, including home.

Howard Levine, chairman and ceo, told analysts and investors at the Barclays Capital 2012 Retail & Restaurants Conference here yesterday that the company is reacting to external pressures in the economy and the recent volatility in its non-consumable businesses, especially apparel.

He first emphasized that Family Dollar "think of our business not just as consumable and not just discretionary. It's how you blend them."

But he acknowledged that the economy continues to be "tough, and very tough on our customer. And in some respects, our customer is always in a recession. They have to live with more uncertainty and make all kinds of tradeoffs. Some parts of the economy are doing better than they were, but housing still is not doing well."

Levine explained that negative weather patterns during Family Dollar's second quarter hurt discretionary product sales, particularly apparel, forcing the company to mark down merchandise and then liquidate goods.

"We reduced expenses on our spring/summer side to be a little more cautious, considering the economy [and weather]," he said.

But then in March, sales were "favorably impacted by favorable weather conditions" spurring "good traction for our spring/summer selling season" in discretionary categories.

As a result, Family Dollar is now "working to know how to run that business, especially in the home area," Levine said. "We are being more cautious about categories that need to be marked down at end of season, and apparel is one of those."

This caution, he noted, is at least a near-term approach in reaction to the current economic environment.

"But don't think for a second that we are leaving those [discretionary] businesses," Levine stressed. "We have a strong niche because we've been able to get more business through those areas" as opposed to grocery stores, for example, who offer only consumables. "It's a niche that has proven to be successful for us."

He added that "even with all the skus we are adding to our consumables, we aren't walking away from our discretionary business. We're just being more cautious and we're focusing more on basics."

On the flip side, consumables represent a healthy category for Family Dollar.

"We're seeing tremendous growth in food and all consumable categories," Levine said, attributing this to "successes we've had in those areas, whether it's our growing cooler presentation, food, HBA (health and beauty), and allowing our consumers to have the items they have been asking us for."

In other related news from Family Dollar, the chain is working to grow
its national brand presence "to increase credibility and gain credibility with consumers. We've been able to resonate with consumers what we stand for everyday with brands."

But the company is equally ramping up its private-branded offering. Employing a companywide approach to this effort, Family Dollar is "raising our standards of quality, upgrading the food assortment," with its privately branded lines.

"Private brand work for our consumers and give her a choice, they give us an opportunity to negotiate against national brands," Levine said.

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