Family Dollar Boosts Profits, A Buck At A Time

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Bad economic news is everywhere these days, but for one chain of small stores, the current economy has meant big money. Family Dollar outperformed all other stocks on the Standard and Poor's 500 last year.

Some 14 million people enter one of Family Dollar's stores every week. Inside, they find something that resembles a hybrid of other retail outlets, with equal parts Wal-Mart, drugstore and supermarket. Customers can buy everything from groceries and cleaning products to clothes and motor oil.

And Family Dollar spokesman Josh Braverman points out that the stores carry more name-brand goods than generics.

"So we've put a lot of emphasis on kind of debunking the myth that if it's dollar store ... it's just going to break a day or two later. That's not the case," Braverman says.

Family Dollar serves both urban areas and small towns. Everything is not a dollar, but most products are sold in even dollar increments. The company's average customer used to make around $30,000 a year, but President Jim Kelly says as the economy has worsened, wealthier customers have begun to stream in — "either out of necessity or perhaps they've paused to rethink some things as a result of the uncertainty of the economy."

"That search for value is something that they're finding at Family Dollar and, as a result of that, more and more new customers are coming in," Kelly says.

While the S&P 500 declined by nearly 40 percent last year, Family Dollar's stock price jumped 36 percent. The North Carolina company even upped its dividends. The rare success, though, hasn't surprised Charles Bodkin, a retail and marketing professor at the University of North Carolina at Charlotte.

When consumers' incomes drop, "that drops the level of the type of store that you want to look at and shop at," he says. "Everyone's looking to save some money now. There's a lot of concern out there."

Bodkin refers to a trend called "trading down": When the economy goes south, consumers shop less at higher-end discount stores like Target. That's meant new customers for Family Dollar, and more spending from longtime shoppers like Telea Vinson, who stopped in for cleaning products.

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

That's not to say Family Dollar always has the lowest price. The company aims to be competitive with bigger stores and then win over customers with convenience. Parking is almost always simple and checkout lines are short.

Bodkin says the recent success of so-called small-box stores shows up in earnings reports and word of mouth.

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

Family Dollar has tried to capitalize on the increased traffic by offering more of the things shoppers need and selling fewer of those they can live without.

"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," says Daniel Butler of the National Retail Federation, "things that people use every day 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? Some — like Bodkin — say consumers will return to their old habits and Family Dollar's sales will fall. But Kelly, the chain's president, says over its 50-year history, some of the company's biggest gains have come during times of economic recovery. And, he says, just because people will have more money doesn't mean they will stop looking for a good deal.

Scott Graf reports for member station WFAE in Charlotte, N.C.



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