The right price point
Dollar Tree wins customers by giving them their money’s worth
- March 1, 2016
Folks say a dollar doesn’t buy what it used to, but it still does at Chesapeake-based Dollar Tree stores.
“As long as there’s a dollar in someone’s wallet, we can sell something for a dollar,” says Bob Sasser, Dollar Tree’s CEO. “And we really work hard to exceed our customers’ expectations as to what a dollar is worth.”
The company, which opened its first dollar stores 30 years ago, is bigger than ever, having recently completed its $9.1 billion acquisition of discount retail chain Family Dollar.
Fighting off a competing offer for Family Dollar from rival Dollar General, Dollar Tree now is arguably the market leader among dollar stores, operating more than 7,800 Family Dollar stores and 5,800 Dollar Tree stores across the continental United States and Canada. The Federal Trade Commission approved the merger after Dollar Tree agreed to sell 330 Family Dollar stores in 35 states to a private equity firm.
With the addition of Family Dollar, Dollar Tree’s annual revenue is expected to climb from $8.6 billion to $19 billion.
Family Dollar “is a great addition and combination” to Dollar Tree, Sasser says. “Our two businesses are very complementary to each other. Family Dollar’s business is over 50 years old, and it’s a very well-known brand.” Family Dollar serves mostly urban, lower-income markets, he adds, whereas Dollar Tree is aimed at suburban, middle-income customers.
Dollar Tree plans to continue running the companies as separate brands. However, behind the scenes, Sasser says, “this was a great opportunity to deliver synergies by combining these two large companies into even a larger company with more buying power.” That buying power lowers costs in buying merchandise for resale and in purchasing supplies and services.
Family Dollar CEO Howard R. Levine stepped down from his post in mid-January. Dollar Tree said he had stayed to help integrate the companies after the acquisition, which was completed last July.
Family Dollar now is led by Gary M. Philbin, its president and chief operating officer since July. He previously was president of Dollar Tree.
Dollar Tree traces its history back to 1986, when co-founders Macon Brock, Doug Perry and Ray Compton created a discount retail chain, Only $1.00, which had stores located mostly in suburban malls.
The dollar stores built on a retail legacy begun in 1953 when Perry’s father, K.R. Perry, opened a Ben Franklin variety store in downtown Norfolk, which later was named K&K 5&10.
In 1970, Brock and the Perrys started a chain of toy stores in Norfolk called K&K Toys, which eventually grew to 130 stores. The 5&10 continued to exist and served as the foundation for Dollar Tree. In 1991, the toy store chain was sold to KB Toys, with the money being used to expand the dollar stores.
The chain changed its name to Dollar Tree in 1993 and went public on NASDAQ two years later, selling at $15 a share. In the past year, the stock has sold at $60 to $84 a share.
Brock, former Dollar Tree CEO, has been chairman of the board since 2001.
The dollar store is “a concept that customers like; everything’s a dollar — it’s disarming,” says Sasser, who has been Dollar Tree’s CEO since 2004 and served as its chief operating officer from 1999 to 2004. “Customers can come into the store and bring their kids in, and they can give their kids a buck, and they can have anything in the store. It’s a great shopping experience.”
Explaining the company’s rapid growth during and after the Great Recession, he says, “We serve a real purpose for our customers as they look for ways to make ends meet. … Many customers in Middle America in recent times with all the issues with the economy and people either out of work or afraid they would be out of work, are looking for ways to stretch their budget. They look to Dollar Tree more and more.”
And that may explain why dollar stores represent such a competitive space. Retail giant Wal-Mart has been building neighborhood markets that are much smaller than its superstores in an effort to provide customers more of the quick access and convenience they associate with dollar stores. Suburban competitors such as upstart Five Below also have entered the discount retail fray.
Nevertheless, Sasser insists that Dollar Tree’s primary competition is itself, and its mission remains staying focused on its business model. “Certainly we’re not comparing ourselves to the Wal-Mart Super Centers with 200,000-plus square feet, selling everything. … We deliver great stores and a great shopping experience and exceed our customers’ expectations for what you can buy for a dollar. … We’re the only national retailer that everything’s a dollar, and it’s been the same price for 30 years. No one else can say that.”
Times may change, but the price of Dollar Tree’s merchandise won’t, says Sasser, proudly pointing out that some sale items, such as greeting cards, are priced for even less than $1.
“The dollar is the price point,” Sasser says. “It’s on the front of the store. It has been for 30 years.”