Changes in Store
March 12, 2019
Each quarter, we’re picking a retail brand that’s changing the conversation, finding a new niche, or making us look twice — and sharing our insights with you.
Q1 2019: Money Does Grow on Trees
Dollar Tree — the retail brand that recently acquired Family Dollar — is looking strong in today’s retail jungle, squeezing margins out of their merchandise and maintaining profits. Net income was up $42 million year-over-year (YOY) and retail sales increased by 4% at the start of Q4 2018. Increased YOY sales are not only due to having more stores than last year (the brand opened 127 new locations and closed only 18 for the quarter), but also increasing sales per store. Same-store sales grew 1%, with Dollar Tree growing at a much faster rate (2.5%) than Family Dollar (0.4%), likely thanks to strong marketing and store design. Though Dollar Tree announced they would be shuttering almost 400 Family Dollar Stores and reported a $2.3 billion dollar loss in Q4, this can be expected from an acquisition of this size. For a retailer boasting 13,000 stores, closing 400 is trimming the herd — removing underperforming or poorly positioned locations.The brand is performing especially well across the American South and Midwest. Smaller markets within these regions — some of which are remote — don’t have the density or critical mass to meet the requirements of large-format retailers like Target. Enter Dollar Tree. The brand has proven itself able to function as a modern day variety store, capturing sales across two traditional retail categories: Neighborhood Goods and Services (groceries, beauty supply, etc.) and General Merchandise, Apparel, Merchandise, and Furnishings (soft goods, electronics, etc.).
Compared to Target, with a standard footprint of 135,000 square feet, 12,000-square-foot Dollar Tree has a created a niche within smaller sized cities and towns. To boot, Dollar Tree is selling items more cheaply than online merchants, a fact that is especially compelling in places where same day, next-day, and two-day delivery options are not always feasible or reliable.
Identifying this niche secures Dollar Tree’s business model and anchors them as a long-term player in the retail market. Market share for the discount variety store still exists and will continue to exist but the brands who don’t evolve to properly capture it will get replaced. Identifying their positioning and evolving to suit the needs of their customers safeguards Dollar Tree’s position in the ever-changing world of retail. Dollar Tree is proving that brick-and-mortar retail is alive, well, and growing within the Amazon economy.