Small-Format Retailers

Dollar stores were all the rage just a few years ago, touted as vehicles to counter big-box mass merchants’ march across the landscape. More than a few things have happened in the interim, however, and these small-format value retailers are now fighting to get their share of the dollars consumers are trying to stretch in a tight economy.

Dollar General has scaled back expansion plans from recent historical levels operating under new owner Kohlberg Kravis Roberts & Co., the private-equity firm that took control a year ago. KKR brought in drug store and supermarket veteran Rick Dreiling to run the chain; his first assignment was to get costs under control, which he is doing by weeding out underperforming stores and combing through the inventory to eliminate underproductive SKUs. At headquarters, Dreiling has been shuffling senior management, seeking the right combination to implement his strategies.

Family Dollar, which was in reinvention mode a couple of years ago, has made a number of positive moves, pursuing an urban strategy that has largely kept many of its new store locations from bumping into Wal-Mart. Inside the stores, Family Dollar has been using general merchandise — particularly home goods and apparel — to create a “treasure hunt” ambience while expanding supermarket merchandise to drive traffic. Larger grocery sections were installed in about 2,800 of the chain’s 6,500 locations during the current fiscal year.

Dollar Tree has maintained a low profile while reorganizing its corporate structure, and Fred’s has also been making strategic moves to enhance its performance, marking some 75 stores for closings. Among Fred’s other initiatives are trimming capital spending and slowing the pace of expansion (though it will open 18 stores and 15 pharmacies this year), cutting corporate overhead 10 percent and initiating multiple merchandising programs to enhance margin and address shifts in the sales mix.

Closeout chain Big Lots is still on the road to recovery, finding pockets of success in consumables and seasonal goods.