Many retailers are taking a long hard look at how to design their “stores of the future”—a model that will enable them to compete and prosper in the 21st century. For Charlotte, N.C.-based Family Dollar, the chain knew it was imperative to approach its “future store” by embarking on a multi-year strategy that focused on a series of business process improvements supported by technology innovation.
Family Dollar, one of the most recognized names in discount retailing, operates 6,460 stores across 44 states and in the District of Columbia. The growing chain generated $6.8 billion in sales for its fiscal year 2006, which ended in August.
Family Dollar stores may only range between 6,000 sq. ft. and 9,000 sq. ft., but this small footprint packs a punch with a broad range of basic goods that target shoppers’ fashion, gifting, household and home decor needs. And by operating no frills, bare-bones locations, the company is able to keep overhead expenses low, thus enabling the chain to deliver approximately 12,000 quality SKUs per store, all featured at low price points.
This economic strategy is also the catalyst that enables the chain to substantially expand its operation. For example, the chain’s goal is to add between 300 and 500 locations each year.
To sustain this high growth rate, Family Dollar formed a cohesive growth initiative based on four main goals: growing in more urban markets less populated by other retailers; expanding its assortment in food categories, including more fresh product and meal solutions; driving greater profits within its fashion category through a “Treasure Hunt” initiative, and finally, focusing on more, better stores.
“When we began this strategy four years ago, each goal required that we look at our business in new ways,” Josh Jewett, Family Dollar’s senior VP and CIO, told Chain Store Age.
“And each new addition upheld the chain’s mantra of providing convenience and value,” he explained.
The transition also required the company to “assess whether our existing information technology could facilitate the change,” he said. “When the company decided to change its operating model and pursue these four new goals, however, it became apparent that we needed to invest in new supporting solutions.”
This task forced Family Dollar into a detailed business process evaluation. “We needed to assess and understand what our business needs were in each of these four areas,” he explained. “Then we could create a plan for the best solutions to support each operation.”
The project was an admirable undertaking, but it was also “something that Family Dollar had never pursued before,” Jewett recalled.
Family Dollar was confident in its IT staff’s capabilities to make the transition. Realizing that the project was such a large undertaking, Jewett also looked to the expertise of a third party to help him guide the project.
“We wanted a partner with prior experience and strong references in this space: one that would assign the best people to the project, and finally, it needed to fit well into our corporate culture.”
That is when Family Dollar leveraged its long-time relationship with IronWorks Consulting, a Richmond, Va.-based consulting services firm.
“Companies experiencing high growth, like Family Dollar, often hit budgetary as well as human-capital constraints,” he said. “You need to decide where you are going to invest your human-capital assets and at times, it makes more sense to rely on outside partners. Rather than reinvent the wheel, we will use third parties that excel in specific projects, management and operational services.”
IronWorks comfortably stepped right into this role. “We helped Family Dollar assess what business processes needed to be improved or could be better leveraged through technology,” said Bhadresh Patel, IronWorks’ account manager and project lead.
Setting the stage: Family Dollar set off on its initial assessment in 2002, and spent almost four months pinpointing its specific areas of focus.
“We knew the first step was to focus on a foundation—a firm technical platform that would help us deliver waves of technology to store level over the next several years,” Jewett explained.
That was when the company chose to build a local and wide area network with the help of Cisco and Verizon Business. “Within that network, the company chose the BEA Integrated Development Environment to create an application and integration framework to support its future growth,” Jewett explained. “With a flexible and expandable platform in place, the team could then focus upon the first critical building blocks necessary to support the business.”
The next piece of the IT puzzle was to find a way to make employees more effective and productive as the scale of the company, and volume of work, continued to grow. The company began to invest in a store-management suite within the BEA framework, and developed an intranet-based portal to deliver a suite of applications. A custom, but prototypical store manager “dashboard” was also created to give store managers daily, actionable business intelligence.
“We also added applications that helped managers eliminate the volumes of paperwork associated with onboarding and sourcing new employees,” he said. “Besides assisting the managers while making the hiring decision, the portal also helps them to fulfill the process in a nearly paperless manner.”
Kronos, Chelmsford, Mass., co-developed these new sourcing, screening and hiring applications.
With the onboarding application in place, Family Dollar recently added a learning management system (LMS) to the mix. This enables associates to log into the portal and walk through a series of training modules.
“Once they complete their learning sessions, field management and corporate personnel can examine the LMS proficiency assessments to evaluate the skills that store associates are gaining, and correct training content as needed,” he reported.
“Since launching the initial store portal in late 2003, we added new functionality every three or four months, and developed a very robust tool that helps store managers in aspects of running their stores,” he said. “These efforts have kept store manager turnover below 40%.”
The retailer’s other priority was to extend the life and value of an aging, legacy point-of-sale system—this was essential to support the business during the multi-year store of the future transformation.
“With a new focus on food and a heightened emphasis on fashion categories however, we had a new set of requirements at the front end,” Jewett said.
Family Dollar began adding perishables to its assortment five years ago. Within the last three years, however, the chain has upped its game as a credible food source.
While the category still features a variety of snacks and beverages, Family Dollar has added more refrigerated and frozen-food options to the mix, creating a meal solution strategy for its busy, cost-conscious shoppers. By jumping into an expanded grocery category, stores changed the way they received, merchandised and sold this perishable offering.
“By actively getting into the competitive food business, we needed a solution that could tackle scanning manufacturer coupons, as well as process federal and state food-stamp programs,” he said. “It was important to our business to be considered a credible food retailer, but that was not possible using our existing store systems which couldn’t handle these robust requirements.”
A growing fashion category was taking a different toll on the chain’s proprietary POS. In addition to soft lines, the chain’s home decor and holiday merchandise also falls under this category, bringing the broad assortment between 4,000 and 7,000 SKUs.
“We have a very unique retail model,” Jewett said. “The best partner had to deliver a solution that could support fashion retaining as well as hard-line capabilities. It also had to support electronic-benefits-transfer [EBT] transactions as well as clearance mark-down functions.”
In 2005, the team selected Transactionware POS software from SAP Triversity, Toronto, and leveraged hardware from long-time partner, Toshiba.
On a roll: At the end of Family Dollar’s fiscal year 2006, 750 stores were outfitted with these new solutions and business strategies, and the chain plans to complete rolling out another 1,500 locations by the end of fiscal year 2007.
While this is significant progress, “This still only accounts for one-third of the chain,” Jewett reported. “This further emphasizes the wisdom of investing in the longevity of our former store system environment.”
As new stores are opened, they will gain the complete footprint of enhancements. “The Store of the Future project has proceeded methodically, in development phases,” he said. “Each year we add new and expanded capabilities.”
And these new enhancements are plentiful. Family Dollar is currently testing credit-card acceptance at POS. This is a fairly new phenomena in the discount retailing segment, which is known for its tight margins, “So we are staying focused on the results,’ he reported. “These results will dictate how quickly we roll out the functionality across the chain.”
Family Dollar is also delivering more functionality through its portal. Last fall, the chain began implementing the first applications, including a broad spectrum of inventory-management functions available on a new portable data terminal at store levels. The company selected a software-development kit from Blue Dot Solutions, Colorado Springs, Colo., and hardware from Datalogic Mobile, Inc., Eugene, Ore.
“We want our Store of the Future to support a broad, concurrent merchandising and supply chain initiative we have initiated across the areas of category management, financial planning, revenue optimization and space planning,” Jewett reported.
So far, the chain is utilizing the portal to stay abreast of merchandising and financial-planning strategies at store level. Yet, there is more to come.
“As the other modules of this merchandising and supply chain initiative come online, we will rely on our stores to execute the new strategies in their locations in pricing and schematic changes,” he said. “The hands-on approach promises to drive more effective results.”
Clearly, Family Dollar’s efforts have not gone unnoticed. The Charlotte Chamber of Commerce recently recognized the chain’s laudable project with its Blue Diamond Award, an honor that recognizes the region’s technology leaders.
“I am pleased with our progress, I am happy for our staff and it is exciting to be recognized for our hard work,” he said.
With new technology innovations emerging on a regular basis, Family Dollar is primed to integrate new strategies to support its Store of the Future. With so many choices however, Jewett and his team remain focused on a very paced rollout strategy.
“We laid out our IT initiatives and synchronized them with our business initiatives. Since we are simultaneously dovetailing these with our four key strategies of food, our fashion “Treasure Hunt,” real estate and growth, it is an incredible amount of change,” he said.
“The only way to succeed is to stay focused, and sequence our rollouts,” he added. “It is imperative to strike a balance between driving business value and delivering customer service through this time of innovation. This vision will help us successfully create many new capabilities in our Stores of the Future.”