Small Changes, Big Moves

It wasn’t too long ago that Family Dollar was growing at a breakneck pace of 500 stores per year. But when same-store comparables began to slip, the company slammed the brakes on expansion, committing to a three-year plan to hone merchandising, training and business intelligence.

After 10 straight quarters of comp store growth, however, the brakes are off. The company plans to add 300 new stores in 2011 and begin an aggressive plan to remodel existing stores, with a goal of refreshing all 6,800 units over a four-year period. The remodel will include new storefronts and signage, increased grocery and OTC medications areas and enhanced operating and maintenance plans at the store level.

“We’ve said for some time, the key to sustainable growth is balancing comp store performance in the mid-single digit range with new store growth in the mid-single digit range,” says James Kelly, president and COO of the Charlotte, N.C.-based discounter. “We thought that the rapid store growth was really hurting our core performance. Now we’re ready. Balance is the key.”

Family Dollar had once been pigeon-holed as a regional — and rural — discount chain. But as it has expanded into 44 states, the need to better understand its customers has been critical. As such, the past few years have not been merely about hitting the “reset” button.

The new initiatives “have fundamentally changed our ability to provide a more compelling place to shop for our customers,” Kelly says. “It’s fundamentally changed how we work together in teams and execute in a much more powerful way.”

Better knowing the customer
When Scott Zucker joined Family Dollar in 2006, the company had serious room for improvement in its merchandising capabilities, especially in better understanding differences in time, location and product.

“Years ago — and I’m going to generalize — we were managing time at the month level,” says Zucker, vice president of IT solutions delivery. “We had created this one-size-fits-all approach that allowed us to grow fast. I don’t want to say we didn’t manage at the SKU level, but our decisions were largely at the class or category level.”

Thanks to Project Accelerate, the three-year, top-to-bottom overhaul of the merchandising systems, “now we operate at a much lower level,” Zucker says. “We manage our merchandise plans at the week level, and at times go down to the day level for seasonal, short lifecycle events.”

The company partnered with SAS and Nielsen, among others, for Project Accelerate. As Family Dollar began to delve more deeply into the shopper intelligence data provided by Nielsen and the planning/analytical capabilities enabled through SAS’s Merchandise Intelligence platform, they began to better understand customer demand patterns at the store level.

For instance, pet owners in urban markets tend to have more cats, while in rural areas they favor dogs. Previously, that difference wasn’t reflected in the stores; the only noticeable difference between an urban and a rural Family Dollar store was the amount of space devoted to pets overall. Now, the company builds nearly 90 Pet planograms, each one tailored specifically to the store’s physical characteristics and customers, Zucker says.

“The challenge that a lot of retailers struggle with today is balancing the projected sales and margin gains from local-market assorting with the operational costs required to execute store-level assortments,” he says. “Since our distribution centers service 600-800 stores, it doesn’t make sense to have slots in the DC taken up by SKUs that are targeted to go to only a handful of stores. To keep us from going down a similar path we created a bunch of guardrails like, ‘We don’t want to stock a product that’s in fewer than X stores serviced by a DC.’ Adding this operational lens to our assortment planning process helped keep us from going ‘ditch-to-ditch’ — from a chain assortment to a unique assortment in every store.”

Real-time market knowledge
Family Dollar has been “very wise about using business analytics,” says Diana McHenry, director of global retail product marketing for SAS. “They’ve done a good job of building a foundation that gets results with their strategic initiative and adding on business capabilities. They’ve built a solid foundation that has the flexibility to continue to be enhanced.”

That base has provided a critical leg up on seeing trends almost as they happen, Zucker says.
“Retail is moving so fast, and the Holy Grail for any retailer is, ‘How do you start to see those small changes that are indicative of a larger trend?’ You may not be able to see the down trend in the economy if you just looked at total sales. But if you looked at laundry and could cipher quickly and see the difference between liquid and powdered — one is much more economical — you can start to piece together a trend that would have been masked at a higher level.

“It’s the differentiator between reacting to a trend now and in six months,” Zucker continues. “It may give you a six-month lead time to move purchases. When we implemented SAS’s merchandise planning platform and it gave us the ability to manage better in season, it really was a game changer for us in terms of being able to see and identify trends at a lower level.”

A keen eye on internal shifts has been critical, but so has an understanding of how the company is performing in relation to the market. Family Dollar’s strategic partnership with Nielsen “gave us a great perspective in terms of how the market is performing relative to us,” Zucker says. “Are we growing market share? We could plan the food category to be up 10 percent. At the end of the year, if we’d had an 11 percent comp, we could say, ‘Great, we beat our plan.’ But if the market was up 20 percent in food, we lost market share.

“Having this external perspective has changed the way we manage our business,” he says. “We now look at metrics like the number of shopping trips our customers make and the amount of money they spend per trip. Our new path forward is shaped by this external, customer-centric view. Trying to embed that mindset into our business processes and tools is not something you do overnight.”

But the swiftness is impressive, McHenry says. “Family Dollar is moving quickly while making strategic investments and building an infrastructure that will serve them for years to come. Many times we go to retail conferences and hear the buzzwords, but rarely do companies put these things into place. With hard work, diligence and doing ‘right things right’, they’re pulling it off.”