For many people, the thought of running a discount retail business seems very daunting.
But for Dollar Tree CEO Bob Sasser, business is solid and has been for quite some time now. How does a discount retailer like Dollar Tree spark customer engagement and brand loyalty?
“Customers are shopping our stores more often, and we continue to attract new customers every day,” Sasser said during the company’s Aug. 25 second-quarter earnings call. “And when these customers are in the store, they’re buying more, both traffic and average ticket contributed to our comp growth. Millions of consumers continue to look at Dollar Tree as part of the solution to help balance their household budgets. We serve a very loyal and growing customer base. Our commitment is to continue serving our existing customers better, while taking every opportunity to gain new customers in every store every day.”
Sasser added that the company’s merchant teams do a terrific job sourcing products that exceed customer expectations for what $1 can buy and at a cost that meets its margin requirements.
Dollar Tree’s fiscal second-quarter performance marked its 34th consecutive quarter of positive same-store sales. The company posted a profit increase of 8.5% to $306.5 million, while revenue rose 5.8%, to $5.39 billion.
Stellar Loyalty CMO Narina Sippy told Loyalty360 that “while the deep discount stores like Dollar Tree have been faring better than most retailers in today’s environment, they aren’t immune to the pressures of increased competition from both other brick and mortar stores and the online channel.”
Dollar Tree has demonstrated a solid understanding of its customer segments and preferences, and has tailored its brand promise (Dollar Tree and Family Dollar) to those customers’ specific needs, Sippy noted.
“But with growth slowing, Dollar Tree will need to invest in strategies to increase frequency / spend and build advocates to drive new customer acquisition,” Sippy added. “For example, how to grow key new segments such as millennials who are attracted to the price / speed and convenience of discount retailers. Creating an engaging, fun shopping experience with relevant seasonal items is where it all starts, and then extending that experience beyond the store to create a deep bond with its customers.”
In the second quarter, a total of 99 new Dollar Tree stores opened and 18 were relocated or expanded. In addition, 32 Deals stores were re-bannered to Dollar Tree stores 47 Family Dollar stores were re-bannered to Dollar Trees for a total of 196 Dollar Tree projects during the quarter.
Doug Sutherland, Loyalty Specialist, Dynamics, explained to Loyalty360 that the dollar store business is certainly unique, operating a business with low margins, variable staffing costs state by state, where volume is likely one, if not the most, important variable for measuring success.
“Loyalty among consumers can’t come from a traditional reward program,” Sutherland said. “There simply isn’t enough overhead to support traditional marketing, such as TV, radio, door-to-door post cards or flyers, digital buys. Therefore, loyalty has to be earned in each and every store, every day, in the transaction. This is where Dollar Tree has taken a leadership position: Stock levels, store layout, lighting, cleanliness, friendliness, bathroom facilities, short lines, happy, smiling, friendly team members -- and a continued philosophy that a buck means a buck.”
Dollar Tree has recently expanded into the Canadian market, which Sutherland said is a “smart decision. This space has been dominated by a single competitor, who shared similar values, but has abandoned the $1 pricing model ($1.25 Canadian) in favor of a low price that rises pretty quickly beyond the $1. It will be interesting to see how much consumer erosion will occur when the same items can be found in a Dollar Tree, at a specific, fixed price of $1. Dollar Tree still has a few ways to promote rewards in the store, feeding an insider community that get to experience one new item per month at a buy-one, get-one model that will, undoubtedly, cost money, but may be a strong enough offering to increase frequency and drive consumers to choose Dollar Tree over a competitor in those markets where competition is very strong.”