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March 2005
Stretching the Family Dollar
By Ellison Clary

     To see a person who truly enjoys his job, gaze into the shiny blue eyes of Howard Levine. Fun at the helm exudes from the chairman and chief executive of Family Dollar Stores, Inc.

     Though he speaks matter-of-factly, he can’t contain his exuberance for the 5,500-store national discount chain that his father Leon Levine founded in 1959 with their first store on Central Avenue in Charlotte.

     His dad was convinced that a neighborhood store that sold economy-priced essentials to low- and moderate-income households could succeed. Locating within walking distance of families with annual incomes of $30,000 to $35,000 proved positive. Today, the stores are in 44 states and the expansion has been financed entirely from internally generated funds.

     That growth will continue, Howard Levine vows during a conversation in his small office. He’s deep within the company’s sprawling 850,000-square-foot headquarters and distribution center just outside Charlotte in Matthews.

     “In the years ahead, we’re going to have almost 10,000 stores,” Levine says. He’s peering into the future as he looks at a wall map of the United States with thousands of pins stuck in it, one for each store and distribution center.

     Then he talks of strengthening the management team, a group of executives he professes to enjoy associating with. The chain has opened 500 or so stores annually for several years, adding up to 2,000 new locations since 1999. He gives much of the credit to that management team.

     “We’ve had tremendous growth,” Levine says, “and there are a number of people here who were instrumental in that.” He starts to name some of them, then catches himself.

     “It really is a team thing,” he says. “We’ve been very fortunate to build a strong management team, and I enjoy that relationship, the camaraderie.”

     Then he turns to the business itself. “I like the competition and I like that in this business you always know where you stand,” he adds.

     Now 46, Levine grew up visiting stores with his dad. His passion for the retail chain evolved, with no family pressure. After earning a business degree at the University of North Carolina at Chapel Hill, Levine spent seven years in the Family Dollar merchandising department.

     He took the presidency of women’s apparel chain Best Price Clothing Stores in 1988, then was a self-employed investment manager from 1992 through 1996. That year, he rejoined Family Dollar. He became president and chief operating officer in 1997, then president and chief executive in 1998. He succeeded his father as chairman in January 2003.

     He likes the niche market Family Dollar has carved, but he’s spent time and effort tweaking the way the stores service it.

 

‘Everyday Low Prices’

     He points to a change of approach in the late 1990s. That’s when the stores stopped running frequent sales, supported by multiple newspaper circulars, and instituted “everyday low prices.”

Sales increased markedly in stores that had been open at least a year, a strong indication of solid growth. Customers liked it. “They know they don’t have to wait for the ad on Clorox or Tide to take a 50-cent or dollar markdown,” Levine grins.

     This fueled the big boom in new stores. But it also presented a challenge – lower margin on sales. Levine addressed it in a number of ways.

     He invested heavily in technology and systems to ensure a low-cost supply structure and added to Family Dollar’s two distribution centers. The eighth distribution center opened earlier this year in

Marianna, Fla.

     And he balanced those low-margin items with merchandise that allowed the stores to make more money. “We added greeting cards and gifts and what we’re now calling ‘treasure hunt’ merchandise,” he says.

     Treasure hunt items are things you might not expect to see in a store that tries to keep prices at $10 or less. For the holiday season, Family Dollar found an exceptional buy on a popular doll that usually sold for $15 or more. Family Dollar priced one version at $10 and another at $5.

     “We had a $5 phone that also had caller ID on it,” Levine continues, remembering Christmas 2004. “We sold over 200,000 of those. And the phone works great.”

     “Opportunistic purchases,” closeouts and other specially-priced products fuel the treasure hunt concept, Levine explains. He believes the chain can provide value merchandise periodically in categories such as home décor, lawn and garden, toys, small electronics and even in apparel, which has been deemphasized in the past.

     The treasure hunt concept impresses Family Dollar director Jim Martin, corporate vice president at Carolinas HealthCare System. “It’s amazing,” Martin says. “I think it adds excitement. You tend to think of the bare necessities at Family Dollar, but people also are intrigued when they find good quality merchandise that is reasonably priced.”

 

Emphasis on Urban Markets

     Martin, who’s been a board member for eight years, is optimistic about the future. “I think we’ve got some things underway that’ll help us continue to prosper,” he says.

     So does Levine. He cites the chain’s emphasis on locating new stores in urban markets and beefing up the ones already there.

     “In the last couple of years, over 60 percent of the stores we have opened have been in urban markets,” he says. “The chain today is probably around 30 percent urban. It’s moving toward more urban because that’s where our customers live.”

     On the wall map, he points to Charlotte, festooned with 20 or so pins. “We’re still looking for sites here,” he says. The same is true for Chicago, Indianapolis, New York, Miami, Atlanta, New Orleans and other urban environments, he adds.

     He likes the customer density in cities such as these. “We’ve opened a lot of stores in the Northeast in the last several years,” he says. “You could have 40,000 people within a half-mile to a mile in some of those areas.”

     What do they buy? Levine ticks off paper towels, toilet paper, bleach and tin foil. “All these consumable items are really big movers today,” he says.

     Many existing urban stores will get improvements in 2005 as part of an urban initiative program, Levine adds. Investments are being made in process changes, technology and people, including organizational changes to support a more mobile and flexible workplace. During the first quarter, which ended November 2004, the program was implemented in about 300 stores. By August 2005, it will be in place in more than 1,000 high-volume stores in 30 large metro markets.

     The objective of the urban initiative is to increase profitability in urban stores by generating stronger sales and simultaneously lowering shrinkage losses. Reducing store manager turnover is also a priority.

     “There’s a big benefit for us if we can have a manager in a store for a year or more,” Levine says. “All the metrics are better, from sales to profitability. By giving our managers the support they need to succeed, we will reduce turnover and that leads to better operating performance.

     Another key initiative that has Levine excited is the rollout to selected stores of coolers for perishable food. The introduction began in January 2005 and the plan is to have coolers stocked with milk, eggs, ice cream, frozen pizza and the like in more than 500 stores by August.

     Along with this, a pilot program will begin this summer featuring point-of-sale register software designed to facilitate food stamp acceptance. It will also simplify cashier training and speed up the checkout process.

     “We think the cooler concept fits nicely into our niche of providing value and convenience,” says Levine, who foresees the coolers being added to many more stores in the next few years. “If you want a gallon of milk, you could stop a convenience store or stop at Family Dollar and probably save some money. You don’t necessarily have to walk into a Wal-Mart if all you need is a couple of items.”

 

Competitors Not Really Competition

     Wal-Mart is among a number of competitors for Family Dollar, Levine says. “They’ve aggressively pursued the low-income customer, particularly in the last few years,” he says. “We’re able to compete with Wal-Mart. We have a different niche, small stores within the neighborhood. Even so, all our customers shop Wal-Mart and it’s important for us to understand what they’re doing.”

     One analyst says Dollar General, the largest company in the neighborhood discount retail market, is “at ease living off the crumbs of Wal-Mart.”

     Levine smiles. “At $250 billion in sales, Wal-Mart has a lot of crumbs that can make a nice meal for us,” he says of the Arkansas-based behemoth with more than 3,600 U.S. locations.

     Family Dollar is second only to Dollar General in the neighborhood discount retail market. Based near Nashville, Tenn., Dollar General has about 7,250 stores and reported 2004 sales of nearly $7 billion with a net income of $301 million.

     For its fiscal year that ended August 28, Family Dollar reported sales of almost $5.3 billion and net income of close to $263 million.

After Family Dollar come other competitors such as Dollar Tree, 99 Cents Only and Big Lots.

     Levine sees Family Dollar’s footprint expanding into all the contiguous 48 states sooner rather than later. But he’s philosophical about whether his chain can have more stores than Dollar General. “As long as we run our business right and take care of our customers and our associates, we’ll be fine,” he says. “Bigger isn’t always best.”

     Taking care of business includes plowing money back into it, he says. “We don’t get stale. We’ve invested in growing our stores.”

Indeed, investments back into the business have grown from $163 million in 2001 to $218 million for 2004 and a projected $270 million for 2005.

     “Putting money back into the business is appropriate,” says Mark Bernstein, who’s served on the Family Dollar board for more than 25 years. “Howard grew up in the business and learned from his father. In a difficult retail environment, Howard is providing some strong leadership,” adds the retired partner of Charlotte law firm Parker Poe Adams & Bernstein, LLP. “I think he has good plans for future growth.”

     Levine returns to his vision. The way to get continued fast growth is simple, he says, again looking five years ahead.

     “We need to work within the framework of what’s been successful for us,” he says. “Offer great value to the low- and middle-income customer.”

 

Ellison Clary is a Charlotte-based freelance writer.
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