Dollar Store Operations: 3 Lessons from Dollar Tree and Family Dollar

By Vladik Rikhter

Dollar Tree sign

It’s official! Dollar Tree will divest 330 Family Dollar stores to a private-equity firm in order to address federal regulatory concerns related to its $8.5 billion takeover of Family Dollar Stores.

With the Family Dollar acquisition, Dollar Tree leapfrogs over Dollar General to become the No. 1 dollar retailer in the U.S., with more than 13,000 locations in 48 states and five Canadian provinces. The combined operation will have sales of nearly $19 billion.

In the last 10 years, the total number of U.S. dollar stores has increased 50 percent, from under 17,000 to more than 25,000, Fortune reported. Given the statistics, it’s no wonder why big retailers like Walmart are focusing expansion efforts on smaller-format Neighborhood Market stores.

Now that the deal is finalized, the true test for these dollar store retailers will be combining operations, especially considering that some stores will remain under the Family Dollar banner where merchandise has various price points.

Here are three elements critical to success in dollar store retail operations, no matter the size of the network:

1. Analyzing merchandise that doesn’t sell

Conduct retail sales audits to find out what merchandise is selling and at what price points. Regularly auditing your stores will quickly identify products that are slow selling and allow you to clear space for those that sell faster.

To that point, you may have to change the way you determine when to order merchandise for your stores. By auditing your stores, you may see the opportunity to keep lower stocks of certain items that can be ordered at the last minute. Of course, you’ll want to work with fast-delivering suppliers on hot-selling items.

2. Eliminate excess labor

Dollar store operations are notorious for their very tight margins, so every expense must be weighed carefully. Conduct employee performance evaluations and keep track of completed tasks and projects during operating hours. It’s possible that some tasks can be combined or even eliminated.

3. Working with and against competitors

The merger is case in point. Consider teaming up with a competitor to purchase some merchandise in bulk from dollar store suppliers. You may be able to receive some discounts. At the same time, it’s important to stay competitive by tracking your competitors’ promotions, and documenting these findings in a measurable way.

A Dollar for Your Thoughts

Dollar store merchandise often includes “essentials such as food and non-alcoholic drinks for at-home consumption, over-the-counter medication and pharmaceuticals, and home and garden,” as Mintel identifies in its “American Lifestyles 2015” report. The research firm predicts that sales of this merchandise will generally lag, “indicating that Americans continue to look for ways to keep necessary expenses low while searching for ways to treat themselves in the coming year.”

Today’s retail environment is demanding, but dollar stores are well positioned to meet the challenge.

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