A Dollar for Your Thoughts? Even in These Times?

How do those stores keep their products selling for the price of, well, you know
July 24, 2008 - Frank Rosci, Jewish Exponent Feature

By now, most of us have seen those dollar-store TV ads that have a customer holding up one item after another and asking the clerk, "How much is this?" After about the third such question, the clerk frowns -- "This is a dollar store, friend!" -- and then answers over the loudspeaker: "ONE DOLLAR!," after which the announcer says, "Everything's a dollar."

Those ads are for Dollar Tree, a leading dollar-store chain. Despite ever-rising fuel and transportation costs being passed on to consumers by just about every other retailer these days, the Chesapeake, Va.-based company is still selling everything for $1, as are other dollar stores.

But for how much longer will a dollar buy anything in Dollar Tree and at other such stores? And who is shopping at dollar stores these days?

Claims Chelle Davis, a spokesman for the chain: "Dollar Tree, the only national, single-price point retailer in the U.S., was founded in 1986 around the single-price point of $1 and not around a particular product, of which 60 percent is sourced domestically and 40 percent internationally, with most of that from China.

"It's part of our founding culture to stay at $1 because we believe the magic of our stores is that we offer name-brand products that are worth more than $1, and because a basic tenet of Dollar Tree shopping is the thrill of the hunt. There are other stores with dollar in their names, but they sell items for more than $1.

"So far, we're holding the line on price and doing all we can to stay there."

Holding the Prices Steady
There are nearly 3,500 Dollar Tree stores in all 50 states, but Alaska and Hawaii, as of June 19, she said, explaining that there are several ways the company works to keep the price at $1.

"If xyz toothpaste, for example, becomes cost-prohibitive, we don't have to carry it. Instead, we look for a lower-cost alternative or do a package redesign to take some of the cost out of the item, since we're committed to product sizes that equal real value.

"We had sold motor oil years ago, for example, but don't do that anymore because the value wouldn't match product size, which would be smaller today because of today's higher oil costs."

Another way Dollar Tree keeps its fuel costs in line, she continued, is through its "logistics network of nine distribution centers, placed strategically across the country," that help to keep the cost of moving merchandise from warehouses to stores relatively low.

A third way is by acting on the option to reduce deliveries to its stores from twice to once a week, said Davis.

"Inside our company ... there is a 'shake the tree initiative' on which we rely for creative ways and ideas that will work to improve our process," she remarked.

Part of this, she continued, involves the extension of the company's acceptance of tender to include cash, check, credit, debit, electronic benefits transfer, and, in some stores, food stamps.

Other aspects of shaking the tree are placing stores near a Wal-Mart or K-Mart to tap into ample foot traffic since people are consolidating their car trips today.

"Our goal is make it easy for shoppers to get in and get out, and to provide them with a fun, friendly experience," noted Davis.

Their first quarter this year ended with a 7.8 percent increase over the same period last year.

It was the first time that sales topped the $1 billion mark in any quarter other than the fourth in the company's history -- a strong indication that some trade-down activity (more affluent people buying at the stores now) may be occurring, commented Davis.

"Years ago, there may have been a stigma attached to shopping at dollar stores, but that has changed, especially now," she said. "We think we're relevant for the times, and besides, who doesn't want to save money today?"

At Family Dollar, founded in Charlotte, N.C., in 1959, and headquartered in Matthews, N.C., spokesman Joshua Braverman said that the company has taken several steps to combat rising fuel costs: "We have worked diligently to create a more efficient supply chain to get goods to the stores (6,500 of them in 44 contiguous U.S. states).

"Family Dollar has nine distribution centers strategically located throughout the country. Their locations were chosen to help move goods more efficiently and limit excessively long trips for our trucks," operated through contracts with national carriers, he explained. "In addition, our buying power has enabled us to negotiate the best possible prices from our vendor community."

About 40 percent of Family Dollar's merchandise is made overseas, he added.

Prices at Family Dollar stores, Braverman continued, range from $1 to $30 and $40 for more expensive items, such as CD players and prepaid cell phones.

"We'll look at spreading costs over other areas of the business before we'll let those increases affect the customer," he acknowledged, "because our customers have come to expect everyday low prices, and we do not want to disappoint them."

According to William Dunkelberg, associate professor of economics at Temple University's Fox School of Business, there are several possible reasons that dollar stores have been able to hold the line.

"One possibility," he said, "is that they've reduced the quality of their merchandise. Another is that much of it comes from countries that are pegged, in one way or another, to the dollar, as with China, for example, so costs haven't changed much.

"A third reason could be that exporters to the U.S. have absorbed some or all of the exchange rate difference to keep market share, and finally, there may be inventory that was acquired when the dollar was stronger."