This past Sunday, my hometown daily newspaper the Charlotte Observer featured this fascinating interview with Howard Levine the CEO of Matthews, NC (a suburb of Charlotte) based discount giant Family Dollar. Levine spoke about his new charitable foundation, the store’s greater use of Private Brands and how Family Dollar will stay competitive this year. The following is an excerpt from the interview.
Call him the ‘Family’ man
A local retailer that’s built an $8 billion business out of shoppers who mostly spend less than $10 each visit has big plans to continue expanding.
As the recession wore down other retailers, Matthews-based Family Dollar thrived, appealing to newly cost-conscious consumers with its low prices.
Now, Chairman and Chief Executive Officer Howard Levine says Family Dollar is poised to open hundreds of new stores each year. The chain also is giving all of its 6,800 current locations a $100,000 facelift, aiming to drive sales by creating brighter, less-cluttered stores with a wider assortment of goods.
Earlier this month, Family Dollar reported profits and sales both increased nearly 10 percent in its first quarter, to $74.3 million and $2 billion, respectively.
But Family Dollar will have to deal with rising food and commodity prices, and figure out how to keep shoppers who traded down from returning to other retailers if the economy picks up. The company also has an activist investor, Nelson Peltz of Trian Fund Management, who’s met with management to push for more aggressive stock buybacks and more new stores.
At his company’s model store on Monroe Road, where new layouts and designs are tested in a simulated Family Dollar, Levine spoke with the Observer about his new foundation, the store’s greater use of private-label brands and how Family Dollar will stay competitive this year. The conversation has been edited for clarity and brevity:
Q. Do you think we’ve turned a corner in terms of the economy and where the consumer is?
I look at the higher-income customer and the lower-income customer. I think we see some better results from the department stores and some of the apparel retailers. I think at the lower end of the spectrum it’s still tough, and I think the statistic that is most relevant there is the unemployment rate. For the college-educated folks it’s about 5 percent, high school-educated people are running around 16 percent. That’s our customer.
Q. How are you planning to boost trips and keep middle-income customers if the economy improves?
One of the focal points of our new strategy is what we call the fill-in food trip. This store here (gesturing to model store) is an effort to grow our food assortment. We’re picking up the out-of-milk trip, the out-of-eggs trip, the out-of-bread trip. Part of our strategy also was to try to capture higher-margin goods, so, for example: For paper towels or detergents we may put some sponges or some other accessory items near that add to the basket and also help the margin.
Q. How do you plan to hold the line on food if commodity prices keep increasing?
Fuel is up 18 percent year-over-year. Whether you need it to get the goods from the Far East or get goods from our distribution centers, there’s clearly pressure on commodity pricing. We’re working through those things. We grew our people in our pricing group and we bought a tool called Revionics that helps manage through those pricing issues. We’ve had plenty of these periods, and while it’s challenging and difficult, we think we’ve got a good team in place.
Q. There was recently a safety recall of Chinese-made toy tanks sold by Family Dollar. How do ensure safety of your foreign-made goods, especially since you recently opened a Hong Kong office to take advantage of more international sourcing?
We’ve invested significantly in our whole quality-control process. Anything we put our name on (Private Brands), we want to make sure we can stand behind. We’ve outsourced a lot of the lab testing to a company that performs ongoing tests to ensure that our suppliers are supplying us with what we all agreed to. I think that’s critically important. In the apparel area, we’ve added resources and people to ensure that when we sample something and go get it made, it’s exactly what we ordered; it’s durable and holds up. The recall – those things happen. We’re selling $8 billion worth of goods, and periodically those things happen.
Q. How is this renovated store model we’re in important to your company’s future, and why invest in renovations now?
Our plan is to touch every one of our stores within the next four to five years and bring them up to this standard. We look at the physical plant of the store, so if a facade needs to be cleaned up we’re addressing that. We’re putting all new signage out there. We’re fixing the front of the store. We wanted to be more competitive in our over-the-counter medications with the baby boomers, so we’re adding some in that area. We’ve got a huge initiative to improve our quality. All of our food that we put our Family Gourmet packaging on is name-brand-equivalent. If you buy peanut butter at Family Dollar, not only will it look like peanut butter, it’ll taste like peanut butter. This is what’s going to position us for the future.