We operate a chain of more than 6,600 general merchandise retail discount stores in 44 states, providing primarily low to middle income consumers with a selection of competitively-priced merchandise in convenient neighborhood stores. Our merchandise assortment includes consumables, home products, apparel and accessories, and seasonal and electronics. We sell merchandise at prices that generally range from less than $1 to $10.
We opened our first Family Dollar store in Charlotte, North Carolina, in 1959. In subsequent years, we opened additional stores and organized separate corporations to operate these stores. Family Dollar Stores, Inc., was incorporated in Delaware in 1969, and all then-existing corporate entities became its wholly-owned subsidiaries.
The mailing address of our executive offices is P.O. Box 1017, Charlotte, North Carolina 28201-1017, and our telephone number is (704) 847-6961. Our website address is www.familydollar.com. You can find our press releases for the past five years on our website. We also make available free of charge through our website all of our reports filed with or furnished to the SEC pursuant to the Securities Exchange Act of 1934, including our Annual reports on Form 10-K, Quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These reports and amendments also are available on the SEC’s website at www.sec.gov.
Overview of Business Operations
Our Mission and Vision
Our mission is to provide customers with a compelling place to shop, our team members with a compelling place to work, and investors with a compelling place to invest. Our vision is to be the best small-format convenience and value retailer serving the needs of families in our neighborhoods.
We serve the basic needs of customers primarily in the low and middle income brackets. Typically, our customer is a female head-of-household. According to Nielsen’s 2009 Homescan® data, approximately 56% of our customers had annual gross income of less than $40,000 and approximately 26% had an annual gross income of less than $20,000. Approximately 33% of our customers were African American or Hispanic, and approximately 68% of our customers were age 45 or older.
A Family Dollar store is typically between 7,500 and 9,500 square feet and generally serves customers who live within five miles of the store. Our stores are located in urban, suburban, small town and rural markets. See Item 2 — “Properties” in this Report for more information. The relatively small size of a Family Dollar store allows us to select store locations that provide neighborhood convenience to our customers in each of these market areas. Family Dollar stores are open at least six days a week, with most open on Sundays. We currently accept cash, checks, PIN-based debit cards, and in most stores, credit cards and other electronic payment types, including food stamps.
We provide customers with quality merchandise at everyday low prices. We offer a focused assortment of merchandise in a number of core categories, such as health and beauty aids, packaged food and refrigerated products, home cleaning supplies, housewares, stationery, seasonal goods, apparel and home fashions. Our stores are operated on a self-service basis, and our low overhead enables us to sell merchandise at a relatively moderate markup. In the typical Family Dollar store, the majority of the products are priced at $10 or less, with many of the products priced at $1 or less. In fiscal 2009, the average customer purchase was $9.84.
Current Strategic Initiatives
We believe that balancing initiatives targeted to deliver short-term financial results with investments that may require longer-term development will help us weather difficult macro-environments and enable us to achieve our long-term financial goals. Our current investment agenda is concentrated around four key priorities: increase relevancy to the customer, drive increased profitability, manage risk and build great employee teams.
Increase Relevancy to the Customer
As the economic environment changes, we remain focused on increasing our relevancy to the customer. We are re-aligning the space in our stores to better meet customer demand and improve the in-store shopping experience. During fiscal 2009, we re-aligned the space in approximately 48% of our stores, adding space for consumable merchandise and improving in-store signage and merchandise adjacencies. In addition, we continue to enhance our assortment of food to meet customers’ frequent fill-in food needs, and we are adapting our store operating hours to provide greater convenience to our customers. We are also expanding our customer research efforts and creating processes that enable us to apply our research more effectively in our merchandise and store layout decisions.
We are upgrading our register and point-of-sale technology to enable us to accept additional payment types, including credit cards and electronic benefit transfers such as food stamps. This upgraded technology also includes a number of computer-based tools to provide our store managers with better training, analytics and workflow management. At the end of fiscal 2009, approximately 74% of our stores operated with the technology. We expect to complete the rollout of this technology to all stores during fiscal 2010. In connection with the technology, we also plan to begin offering gift cards and merchandise return cards to our customers.
Drive Increased Profitability
In order to drive increased profitability, we continue to invest in initiatives that drive top-line growth, and we remain focused on cost management. In addition to the initiatives already discussed, we are enhancing our private label offering and global sourcing efforts and making additional investments to strengthen our pricing efforts. As customers become more budget-conscious, they value quality private label products at compelling prices more. We are enhancing our assortment of private label merchandise to reinforce our value perception and to enhance profitability.
As raw material and commodity prices fluctuate, having an appropriate pricing strategy is critical, both to reinforce value to the customer and to manage profitability. We have created a structured framework for pricing decisions that enables us to better balance the need for profitability with the customer’s perception of value. We plan to continue focusing in this area by refining and expanding our zone pricing initiative. We also plan to begin utilizing new software to strengthen our price optimization efforts, including promotional and clearance pricing.
To manage global pricing pressures and mitigate the pressure from increased sales of lower-margin consumable merchandise, we continue to enhance our global sourcing efforts. As a result of these investments, we have improved our product quality, offering greater value for our customers, while also improving merchandise markups.
In the current economic environment, our customers face rising unemployment and a decline in average hours worked. As a result of these and other factors, our customers remain focused on basic consumable needs and continue to limit their discretionary spending. Reflecting the uncertainty in the current environment, we remain focused on managing our inventory risk. We are investing in key traffic-driving categories while constraining purchases in more discretionary categories.
We continue to make investments in our multi-year process improvement initiative called Project Accelerate. Focused on category management, price optimization, merchandise financial planning, assortment planning and space planning, this initiative is intended to help us improve and optimize our merchandising and supply chain processes. Our goal is to improve the shopping experience of our customers, the productivity of our inventory and the efficiency of our supply chain. The Project Accelerate initiative is helping us manage inventory risk and react quickly to the changing environment.
Build Great Teams
We believe that our long-term success is dependent on our ability to create strong employee teams that can adjust and respond quickly to ever-changing operating conditions. We continue to invest in this effort and in building a stronger Family Dollar culture. Utilizing an expanded library of computer-based training applications, we are creating career paths for talented, ambitious team members who want to make a larger contribution. We are strengthening our succession planning and leadership development programs, and, to support our focus on driving results and continuous improvement, we are improving our performance management programs.
We continue to make great strides in stabilizing our workforce, especially in our stores, where the benefit of experienced store teams has the greatest impact. Our current store manager, assistant manager and cashier retention are at historically high levels. A more experienced workforce allows us to offer stronger merchandise presentations, maintain better in-store standards, and improve the customer shopping experience. We believe our focus on employee retention also is having a positive impact on inventory shrinkage and workers’ compensation and general liability claims.
We operate more than 6,600 stores in 44 states. All of our stores are managed and operated by us. A store manager manages each store and is responsible for hiring and training store employees, managing the financial performance of the store, and providing quality customer service. The store manager reports to a district manager or area operations manager. A district manager or area operations manager is typically responsible for 15 to 25 stores. During fiscal 2009, no single store accounted for more than one-quarter of one percent of sales.
We utilize a variety of technological systems to manage our business, including point-of-sale technology, inventory management tools, supply chain systems, and financial and human resource applications.
We are upgrading our point-of-sale technology to provide better customer service and to improve the communications infrastructure in our stores. The upgraded technology facilitates the acceptance of additional payment types, including credit cards and food stamps, and includes a number of computer-based tools designed to provide our store managers with better training, analytics and work flow management. At the end of fiscal 2009, approximately 74% of our stores operated with the technology. We expect to complete the rollout of this technology to all stores during fiscal 2010.
We maintain by-item inventories for all stores and employ a demand forecasting system for replenishment of our distribution centers. We also utilize software applications for centralized store replenishment of basic merchandise and for allocation of non-basic merchandise. We have a centralized Merchandise Financial Planning application and process that is utilized to plan and forecast sales, cost of sales and inventory metrics by product category to position us to achieve our financial goals and to ensure proper flow of inventory. These systems allow us to optimize merchandise in-stock positions in stores, reduce markdowns and improve inventory turnover.
To minimize transportation costs and maximize our efficiency, we rely on a web-enabled transportation management system to track shipments, to maximize trailer loads and to secure low rates from our trucking partners. To maximize the productivity of our distribution centers, we utilize voice-recognition software, radio-frequency technology and high-speed sortation systems in each of our nine distribution centers.
To manage our extensive library of store leases, we utilize a lease management system that contains the key terms and conditions abstracted from our active store lease contracts. This electronic repository provides us with better visibility to key property management issues such as property taxes, common area maintenance and renewal options.
Our centralized procurement organization utilizes an on-line procurement system for many non-merchandise purchases. This system allows us to centralize these purchases, enabling us to leverage our buying power and control costs.
We utilize an online hiring system designed to provide consistent pre-employment assessments and interviews for prospective team members in approximately 81% of our stores.
As of August 29, 2009, we had approximately 27,000 full-time employees and approximately 20,000 part-time employees. None of our employees are covered by collective bargaining agreements. We consider our employee relations generally to be good.