Family Dollar Industry Overview the Retail Industry

Family Dollar

Industry Overview

The retail industry is divided into a number of different segments, of which discount stores are one of the largest. Firms in the industry typically compete on price. This makes for a challenging industry because firms need to successfully execute a high-volume, low-margin business model (Investopedia, 2011). The dollar store industry is considered by some to be a sub-segment of the discount segment of retailing.

The discount industry is fragmented, but nonetheless has a handful of dominant competitors. The retail industry is worth an estimated $4.13 trillion, but this includes food service and automotive (Farfan, 2011). The discount industry may only be one-tenth of that figure. Among discounters, smaller segments may include warehouse stores, large-box discounters, category killers and dollar stores. Competitors include Wal-Mart, Costco, Target as well as dollar store competitors in Dollar General and Dollar Tree (Cheng, 2011).

The sector has enjoyed strong growth as a result of consumers trading down during the economic downturn, but as economic conditions improve the industry appears to be stagnating. Dollar stores -- the bottom end of the discount industry -- appear to be suffering the most as a result of this shift in the economic environment. Family Dollar has seen its financial results take a downturn and its competitors are beginning to show signs of struggling as well (Cheng, 2011). As a result, projects for the industry are for minimal growth at best.

While the industry is not facing consolidation, firms are generally becoming larger in this industry, and these large competitors are crowding out independent operators. Firms are efficient in distribution and are often well-financed. There are no major regulatory issues facing firms in this industry, and no significant issues with product liability. The main point of product innovation is that products are of increasingly higher quality. While the overall quality remains low in the industry, firms are attempting to differentiate by offering better goods at low prices.

Corporate Overview

Family Dollar was founded in 1958 by Leon Levine in Charlotte, North Carolina. Family Dollar has always had roughly the same product line. There has been little innovation over the years -- the company has always offered a range of household goods at low prices. A move to everyday low pricing, instead of sale items, was made two decades ago and the company has held fast to this philosophy ever since. The company has emphasized consistency through the years as well, with Family Dollar even having a basic floorplan for all of its stores. This makes the task of managing an individual store relatively easy, as there is little variation and many management decisions can be centralized.

Family Dollar has been a publicly-held company since 1970. There have been a number of stock splits over the years as the company has grown. The company moved to the American Stock Exchange in 1972 and finally the New York Stock Exchange in 1979, where it has remained ever since (Family Dollar.com, 2011). Family Dollar has not made any acquisitions over the years. The company has simply continued to expand by building new stores and distribution centers. It has not used mergers and acquisitions to enter new territories. This approach is not uncommon in retail, when building new stores is often seen as preferable to other approaches.

Financially, Family Dollar has seen gradual growth of its business over the past several decades. In recent years, the company has seen its revenues grow steadily. Net income has also grown with the company, indicating good financial health. With respect to the Family Dollar balance sheet, the company has not seen a dramatic change in its financial position. Its assets have grown, but so too have the liabilities and equity, and largely in lockstep with one another. Cash flow from operations has also increased steadily (MSN Moneycentral, 2011).