Thursday, March 12, 2009

Going Beyond Value

Late last year, I wrote about value becoming tablestakes. The upshot was that consumers were about to be bombarded with promotions screaming value, putting retailers in most categories at a disadvantage relative to Walmart.

Some value retailers have been caught flat-footed, like Sears, whose Q4 2008 profits were down 55% from their 2007 levels and whose comps dropped 8% for the year. As Fortune reported late last month, “analysts are predicting profits will fall even further in 2009, and one even suggests Sears may disappear altogether.”

Meanwhile, Family Dollar has been busy adjusting its assortment and promotions strategy to better fit the times. CEO Howard Levine told attendees at a February Deutsche Bank Small and Mid Cap Conference that the 6,600-plus unit neighborhood discount chain is “working to increase relevancy to the customer by reinforcing more promotionally priced offerings and expanding the assortment of key consumables, such as food.”

What exactly have they been doing? The company added sales generating SKUs of food, health and beauty aids, and laundry and cleaners – all items that people buy regularly and frequently, so they come into the store more often. In addition, the company directly confronted the downturn in the home category by launching a Home Remodel event featuring inexpensive home d├ęcor ideas. And it took a page from Merchandise Optimization 101, promoting average ticket-increasing merchandise in in-store circulars and end-aisle displays. In another smart merchandising move, the company is using seasonal buys to freshen the selection.

The strategy appears to be working. According to a Dow Jones Newswire from March 5, Family Dollar’s second quarter comps store sales were up over 6%, and the company raised its earnings guidance ten cents to $0.61 a share. And the stock is up 60% vs. year ago levels.

From all appearances, Family Dollar seems to be getting back to retailing basics in ways that consumers, as well as shareholders, clearly approve of.

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