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Family Dollar Sees PL Gains, But Improved Margins Elusive

January 17, 2011
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Expanding private label is important to expanding gross margins that have been buffeted by cost pressures, Family Dollar Stores’ CEO said in his latest call with industry analysts.



Expanding private label is important to expanding gross margins that have been buffeted by cost pressures, Family Dollar Stores’ CEO said in his latest call with industry analysts.
 
Family Dollar Stores’ President and CEO Howard Levine made extensive comments during the call on the company’s commitment to growing private label as part of programs to expand in-stock consumables and improve gross margins amidst rising commodity prices. Family Dollar Stores is the second largest dollar store chain in the United States.
 
“While we have made significant progress in expanding our penetration of private brands, we want to move faster,” says Levine. “As a result, I'm pleased to announce that we recently established a strategic partnership with a leading sales and marketing company dedicated to the private brand space.”
 

In recent quarters, consumable sales expansion at Family Dollar was driven primarily through the addition of national brands, says Levine, noting that national brands expansion is a relatively quick way to increase assortment in key areas, but that it doesn't generally contribute to gross margin expansion.

“Consequently, we are working aggressively to better balance sales of national brands and sales of private brands,” he says, resulting already in the introduction of a new Family Dollar brands as well as conversion of vendor control labels. The company, says Levine, now has more control over quality standards and a greater opportunity to leverage brand value.
 
“During the first quarter, we continued to expand our penetration of private brands. For example, today our Kidgets assortment accounts for half of our diaper sales, and this fall we introduced even more Kidgets baby-care items for our customers,” says Levine. Another area of private label expansion was assortment expansion for the company’s Family Gourmet products.
 

In addition, says Levine, “Our investments to build an integrated global supply chain will support our private brand goals while also enabling us to reduce our merchandising costs. Last year, less than 10 percent of our purchases were imported directly by us. We believe that we can reduce cost and improve quality with a better balance between direct relationships, agents, and U.S.-based trading companies. This year we have taken a significant step toward this goal with the opening of an office in Hong Kong.”

The company’s private brand program already has gained “some fairly significant momentum. In the first quarter, we had roughly a 24 percent increase in that area and a 30 percent increase in our private brand program in the consumable arena,” Levine says.
 
At the same time, Levine admits, “Private brands thus far have not been a contributor to the gross margin expansion. What we've talked about is a very strong effort to improve quality, to make sure that when we put our name on a product that we're hitting name brand equivalence, and we’ve worked hard and spent money to do that. We're starting to see some benefits from that.”
 

Family Dollar operates more than 6,800 outlets in the Untied States. Sales for its FY 2011 first quarter, ending Nov. 27, 2010, rose 9.5 percent to $2 billion.

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