Dollar Tree Inc. is stepping up its rollout of an experimental store concept that combines its sister Dollar Tree and Family Dollar brands under a single roof.
Officials this week said its “Combination Store,” which quietly debuted at a single location in 2019, now number 50 following the addition of two combination stores early last year and refinement of the concept. Since last July, the Chesapeake, Va.-based retailer has opened 47 new combination stores and said the format—which is performing strongly vs. legacy Family Dollar stores in similar markets—would now be an option for new and renovated stores in rural towns with populations of 3,000 to 4,000. Those are markets previously considered too small to support the single-price point Dollar Tree concept.
“We are extremely pleased with our customers’ response to the new Combination Store concept,” Michael Witynski, president and CEO of Dollar Tree Inc., said in a news release. “As I have said in the past, we will continue to refine our strategic store formats so that we are able to better serve customers while improving store productivity, margins and returns.”
Officials say the combination format brings the multiple-price-point value and assortment of Family Dollar together with the “thrill-of-the-hunt” elements of the single-price-point Dollar Tree brand. The stores appear to all be in locations that were previously Family Dollar-only units.
Some social-media observers poked fun at the look of the dual-branded concept, which incorporates the colors and logos of the respective brands on the storefront.
this looks hideous, as if the parents of 7-11 are divorcing, but The American Eater Wins Again https://t.co/edhx0GTz1m— Barbarian Capital (@BarbarianCap) March 3, 2021
Dollar Tree Inc. bested rival Dollar General in a bidding war to acquire Family Dollar in 2015 but has encountered difficulties realizing benefits from the combination, mainly due to lengthy struggles at the acquired brand. However, that brand has rebounded some with COVID trends and the introduction of the “H2” store format, which is more heavily reliant on food and has $1 merchandise departments with items sourced from its Dollar Tree sister. The company has also flipped hundreds of locations between concepts, though primarily rebranding Family Dollar stores under the Dollar Tree banner.
Compared to other Family Dollar stores in similar markets, Combination Stores are delivering a same-store sales lift of greater than 20% on average, and are more productive with high gross margins and better expense leverage, Witynski said. This presumably makes such combo stores more formidable competitors to existing grocery stores serving small markets.
“We want formats that leverage the best of the Dollar Tree and Family Dollar brands to serve customers in all types of geographic markets. We believe we can continue to change, evolve and improve,” he said.
600 New Stores, 1,250 Renos in 2021
The company made the combination store announcement March 3 while reviewing its financial results from its fiscal fourth quarter.
For the period, which ended Jan. 30, the company posted consolidated sales of $6.8 billion, a 7.2% increase, with comparable-store sales of 4.6%, consisting of an 8.1% rise at Family Dollar and a 2.4% comp gain at Dollar Tree. COVID sales trends have favored assortment and larger basket sizes and have tended to benefit Family Dollar.
Gross profit increased by 9.8% to $2.15 billion in the quarter. Gross margin was 31.8%, compared to 31% in the prior year’s quarter. The 80 basis-point improvement was driven by sales mix, reduced markdowns, leverage on occupancy costs from same-store sales, and improvement in shrink, partially offset by higher freight and distribution costs.
Same-store sales came in below analyst estimates of 5.5%, while revenues were in-line, and earnings-per-share of $2.13 beat estimates by a penny.
Citing uncertainty as it laps COVID sales, Dollar Tree declined to offer financial guidance for the new year. It said it planned to open 600 new stores (400 Dollar Tree, 200 Family Dollar) and to renovate 1,250 Family Dollar stores this fiscal year. The renovations will be comprised of Family Dollar’s H2 format and Combination Stores as markets warrant.
“Our teams worked incredibly hard throughout the unique and challenging environment presented to us in fiscal 2020. I could not be more proud of our teams’ commitment, dedication and focus,” said Witynski, the former grocery executive who took over as the chain’s CEO last year. “As we look ahead, we believe our proven strategic store formats, accelerated store growth plan, 1,250 planned store renovations for the year, several key sales- and traffic-driving initiatives, and a robust balance sheet will enable us to deliver long-term value for each of our stakeholders—customers, associates, suppliers and shareholders.”