Family Dollar Trying to Capture Higher-Income Customer

(MoneyWatch)  Family Dollar Stores is targeting a more affluent customer than its core shopper with a household income of $40,000 per year or less, and why shouldn't it? Visitors with household incomes closer to $70,000 already make up about one-third of the retailer's customer base, and management expects more as the recession continues to hammer away at wallets.

More and more Americans are looking for a deal nowadays, so it's only natural that a dollar-store chain would want to take advantage of that climate. And now Family Dollar's sites are set on stealing some shoppers from Target and the traditional grocery store chains. Said President and COO James Kelly during Family Dollar's 2009 Analyst and Investor Conference: "As the economy continues in its depressed stage, there's opportunity for trade down."

One thing that the company needs to get over, though, is the perception that the brand-name products it sells are lower quality than other stores offer, said Dorlisa Flur, chief merchandising officer. "We have, with our national brands, the same first quality goods that you're going to get in your leading grocery store," she emphasized.

One needs only to look at Family Dollar's coupons on its Web site to see that many of the products it sells are the same as other national chains, at lower prices. But how can the company convince new shoppers? Flur said that Family Dollar ramped up its marketing team and will make a bigger push in print advertising and holiday promotions. But it would be nice to see the chain cough up some money for television commercials.

Other than increased marketing, the 6,700-location Family Dollar will get the word out by expanding its store base -- a reverse from its strategy a few years back when the company decided not to aggressively grow. But a favorable real estate market for tenants is changing that and a big growth push is on tap for 2011 and 2012. "We now have more opportunities than we've ever had," said Kelly, without providing specific numbers.

Besides just wanting a new customer base, a goal of every retailer, Family Dollar wants to broaden its appeal because its core customer is spending less. When the recession first hit, the chain's paycheck-to-paycheck base suffered more than other income levels because it didn't have the luxury of savings or credit cards to fall back on. That ended the group's discretionary spending. "Some may think we do best in a recession, but I would much rather operate in a robust economy," remarked chairman and chief executive officer Howard Levine.

So the hope is that when the economy gets more robust, Family Dollar's core customer will resume buying discretionary items, and with them, a higher-income category will consider the chain a regular shopping trip.