Dollar Tree Stores, Inc. (DLTR)
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Tree Stores, the nations leading $1.00 discount variety store chain, has the people,
infrastructure and cash in place for continued profitable growth
Mr. Sasser: I think what attracted me to Dollar Tree was the same thing that excites a lot of our investors; it is an exciting company that is growing profitably and is well positioned for expansion. It is a concept that people like and, having being a retailer all my life, I like concepts that customers appreciate. Therefore, I would say that my initial attraction was the historical growth and outstanding execution of the company.
CEOCFOinterviews: Will you give us an overview of Dollar Tree?
Mr. Sasser: Dollar Tree is a chain of discount variety stores. All of our merchandise is offered at a price of one dollar. Our stores are bright, colorful and decorated with informative signage; our bright lighting helps us enhance the feeling of excitement in the store. We offer a variety of high quality everyday merchandise like housewares and health and beauty care, cleaning supplies and paper products, alongside an ever-changing array of seasonal and fun products such as toys, stationary, gifts and home décor. Many of our products are branded and all of our products are of high value. We operated 2,263 stores at the end of last year, which was over thirteen million square feet of retail selling space across more than forty states. Our customers are mostly middle-income females with families. We locate our stores where Middle America shops, such as malls and strip centers convenient to where they live and work.
CEOCFOinterviews: Why do you operate under different names?
Mr. Sasser: That is changing over time. Dollar Tree is our national name. We have a few Dollar Bill stores in the Chicago area that we acquired several years ago, but we are changing the names of those to Dollar Tree as we reposition and expand the store or relocate the store. Eventually, only the Dollar Tree name will be used, but we do have a few other names through acquisitions.
CEOCFOinterviews: Will you tell us about the recent acquisition of Greenbacks?
Mr. Sasser: Greenbacks is a great acquisition for us strategically. It gives us 100 stores in the Rocky Mountain states and just as importantly, it gives us a distribution center in Salt Lake City, which is in an area of the country where we had no presence. These stores do about $100 million in sales. The distribution center, the stores, as well as the revenue stream and the people, are going to give us the ability to grow in that region, which would have taken a number of years without the acquisition. It is a solid company, everything they sell is a dollar and their stores are about 11,000 square feet on average. Their product assortment is a lot like ours, offering a wide variety of merchandise. Their real estate is just like ours; they are located in strip centers and in a few malls. They also have the same middle-income customers. We are excited about the opportunity that this acquisition provides to expand Dollar Trees growth to the Rocky Mountain states.
CEOCFOinterviews: Do people go to your stores looking for a particular item, or do they wander in wondering what they can find there at any given day?
Mr. Sasser: We located our stores where middle America shops; we look at the breadth of the retail line-up in strip centers. Mostly, we are feeding off the traffic of the center or wherever the store is located. People do just wander in, especially the first time. Once they come in the store, they like it. They enjoy the thrill of the hunt and are surprised by the value. One of the most frequently asked questions is How much is this? because customers cant believe items sell for just one dollar. We have found that our smaller stores typically cater to first-time customers, who wander in, find items of great value, and then spread the word about our stores. In the larger stores, we become more of a destination.
CEOCFOinterviews: Is there a certain amount of merchandise that stays the same, such as if you were looking for toothpaste, would you always know you could find toothpaste there?
Mr. Sasser: We will always have toothpaste; you will always find three brands. On your next shopping trip you might find the old stand-by that you know and like, but you also might find a tube of Crest that is a surprise to you. You can always count on cleaning supplies, health and beauty care, and things that you need, and then we surprise you from time-to-time with even better values.
CEOCFOinterviews: Is the seasonal merchandise a big item for you?
Mr. Sasser: Our seasonal assortments are just fabulous. We think that we have great seasonal products that you would want anyway, and its all at the dollar price point. Another customer favorite is our party department. Our party buyers did a fabulous job of designing products and gift bags only for Dollar Tree. We think about our products in terms of quality, color, design and trend. After that, we try to figure out how to sell them at the one dollar price point.
CEOCFOinterviews: How do you get the people in the stores?
Mr. Sasser: Mostly we get people in the stores through word-of-mouth. We locate a convenient location with good real estate, where people live and work. We locate near other traffic generators such as shopping meccas, where other large retailers live. It is about traffic, density of population, and then word-of-mouth. People tell their friends and families about the great things they got for only a dollar.
CEOCFOinterviews: What about the distribution centers and technology? What are the logistics involved in maintaining all of these products?
Mr. Sasser: We have a big logistics process. When you are selling a lot of items for a dollar, and when you are doing two-and-a-half billion dollars and more in sales, that is a lot of units, so our logistics network has to be very efficient and very reliable as well as cost-effective. We have a distribution network that is mostly automated. The way it works is as follows: After the product comes in and is scanned, the store order allocations are downloaded and matched up with the receipt. Then the product goes onto a conveyer belt and slides untouched through the distribution center until it ends up on the truck going to that store. We have a 400,000 square foot facility in Chesapeake, Virginia. The version that we are building today is 600,000 square feet in Briar Creek, Pennsylvania and Savannah, Georgia, and we have another one in that size range in Stockton, California. We have just announced that we are building a new distribution center in Washington state, as well as replacing our small manual distribution center in the Chicago area with the largest one in our fleet, which will be in Joliet Illinois; it will be about 1.2 million square feet because we have a high density of stores in the center of the country and a huge opportunity to increase the number of stores in that region.
CEOCFOinterviews: How much affect has the economy had on your stores?
Mr. Sasser: As the economy turns downward from time-to-time, we are insulated a lot from that because of our price point and our values; we actually become more of a favorite place to shop for the things that you need and want. However, we are subject to the same malaise in shopping as are other retailers. High unemployment rates and fuel prices make people less inclined to shop. I think we have faired better in tough economic times than most, but I would rather have a good economy than a poor economy.
CEOCFOinterviews: From which stores are you taking your customers?
Mr. Sasser: I dont think we are taking from one place as much as they are coming from across the spectrum; some of our customers come from chain drug stores, convenience stores, and big retailers. Sometimes I think we incite people to buy something they did not intend to buy or never would have bought. People come in and see that our gift products, candles and potpourri are a tremendous value and they buy the items because they are fun and are only a dollar.
CEOCFOinterviews: How do you attract and keep the people that are on the cashier level and how do you encourage them to treat the customers as they should be treated?
Mr. Sasser: We try to treat them well; we think that if we treat our people well, then they will treat our customers well. We offer good benefits, competitive pay, and have a positive culture. We are nice people and we try to hire people that we like and that share similar values. We train our people so that they feel confident that they can do what we ask of them. Our customers are happy about the value they are getting and they treat our people well.
CEOCFOinterviews: What are your geographical growth plans, and are there any more acquisitions on the horizon?
Mr. Sasser: We
spoke about Greenbacks earlier, and that is the latest acquisition. We dont plan to
grow through acquisitions; we plan to grow organically. That recent acquisition was an
opportunity to expand into a space that would have taken us several years to penetrate.
Greenbacks had a good organization of people that knew how to run dollar stores. As we
continue to grow, we fund our expansion through internal operations. We want to grow
profitably and build the infrastructure ahead of the need. As previously mentioned, we are
building two new distribution centers. The one in Ridgefield, Washington is being
built in order to support the stores in the Oregon, Washington and Idaho area.
CEOCFOinterviews: Are you building bigger stores than you used to, and if so why?
Mr. Sasser: Every year the dollar store is getting bigger and some of it has to do with the availability of products improving and expanding. Some of it is the need and desire to better serve the customers. The stores that we are now opening are about 9,000 selling square feet, and we have some larger than that. Our customers like the larger stores and it gives us an opportunity to offer a broader selection of products that appeals to a larger clientele. Our customers like it, and they buy more and stay longer. We are always following their desires and we intend to keep doing that.
CEOCFOinterviews: How do you know what the customers want?
Mr. Sasser: When I see that the average ticket is a buck-and-a-half higher in the stores we are building now versus the smaller stores that we were building, I take it as a vote of confidence that the customers approve of the selection. We also offer many new products in different groups of stores to see what resonates with the customers. We observe what other retailers are selling and we ask manufacturers what they are selling. At the end of the day, you calculate the results. Customers will vote for you or against you, and if they vote against you, then you change. From time-to-time we conduct market research and focus groups to gauge customers interest. Then we make the appropriate changes and evaluate their needs at a later date.
CEOCFOinterviews: I saw from your literature that you want to be the modern day equivalent of the traditional variety store; do your customers realize that is what you really are?
Mr. Sasser: Our founders began saying that years ago. I think it is a way of describing what we do and what we aspire to be. To say that we are the modern day version of the old variety stores like the old five-and-dime stores gives a good picture of where we are and what we are doing. We are not a grocery store although we sell food, we are not a mass drug store, although we sell cold medicine and aspirin and vitamins. We are a variety store and we offer products for families. We offer toys for the kids, stationery for back-to-school, and gifts for the church social or the teacher. Teachers love us because we sell a lot of items for the classroom and for a small amount of money, they can buy fun products to encourage the kids to apply themselves more in school. I think the variety store description is a good one both internally, and to Wall Street. Oftentimes, while on an airplane, somebody will show me something that they purchased at a Dollar Tree store when they find out I work at Dollar Tree. We try to exceed our customers expectations everyday.
CEOCFOinterviews: Why are people coming to you as opposed to your competition?
Mr. Sasser: I
think a lot of people are going to the competition too; we are not the largest discount
variety store chain in the market. We have over 2,400 stores but some of the other stores,
although they are not all at the one-dollar price point, have more stores than we do.
Many customers go to other places for different reasons. We try to build stores in
areas that are convenient and in areas where our customers feel safe.
CEOCFOinterviews: In closing, what would you like to say to investors and what should they know that perhaps they dont realize when they look at the company?
Mr. Sasser: We have a concept that people like and we are right for the times. We offer value on things people want and need for only a dollar. Dollar Tree has demonstrated consistent profitable growth. Since 1996, sales have increased at a compound annual growth rate of 23% and our EPS has grown at a compound annual growth of 24%. We have a strong balance sheet with plenty of cash. We ended 2002 with about $300 million in cash on our balance sheet. We can grow through good economic times as well as bad with internally generated funds. We didnt use our short-term bank line of 2002, while still growing square footage. Dollar Tree is a well-managed company; our people are qualified and they execute extremely well. We always build infrastructure ahead of the need. As an example, our seven distribution centers are increasing to nine and we have always opened on time and under-budget, with no disruption of business. We have a concept that people like and we have the people, infrastructure and cash in place to continue to demonstrate consistent profitable growth. Further, there is room to grow; we have less than 2,500 stores now, and there is room for five to seven thousand more stores. That growth makes us attractive to investors.
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