THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Wednesday, January 25, 1995 TAG: 9501250645
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER
LENGTH: Long : 131 lines
The one-dollar variety store, the modern version of the five-and-dime, can give a poor entrepreneur a shot at gold. Rent is cheap, and opening costs are low.
Surviving in the market, however, is another matter. The biggest challenge for discount variety stores is pinpointing quality merchandise and shunning junk. Also, the number of one-price stores has ballooned, maiming even big chains like Everything's a Dollar and All for a Dollar.
Despite these competitive hurdles, Norfolk-based Dollar Tree Stores Inc. has grown from five shops to 409 in less than a decade. It is now the largest ``all's a dollar'' store in the nation, with 4,000 employees and sales of more than $120 million.
``I don't see it plateauing,'' company President and Chief Executive Macon F. Brock Jr. said in a 1992 article in The Virginian-Pilot and The Ledger-Star. ``We're just at the beginning.''
The company's executives and shareholders declined to be interviewed for this story because their proposed public stock offering, announced earlier this month, has not yet been approved by the Securities and Exchange Commission.
The SEC prohibits companies that are preparing to sell stock from promoting themselves publicly.
The offering is one example of how Dollar Tree's success has allowed the three companyfounders - Brock, J. Douglas Perry and H. Ray Compton - to cash in a few of their chips over the years.
They shed K&K Toys Inc., the 136-store chain Perry's father founded, about three years ago for an undisclosed price.
At the time, the only Dollar Tree shareholders were the three founders plus Perry's wife, Patricia, and Brock's wife, Joan.
In September 1993, outside investors bought 50 percent of the company for $23.6 million. That purchase made SK Equity Fund, a limited partnership in Connecticut, Dollar Tree's largest single owner.
Next month, the public will get a chance to buy a piece of Dollar Tree if the company's public stock offering is approved. The proposal, submitted Jan. 13 to the SEC, would place 15.1 percent of the company in public hands.
If approved, 2.5 million shares would be sold at an offering price of $16 a share, bringing in about $40 million.
The public stock offering will be a first for Dollar Tree, which grew out of a five-and-dime store that Chairman Douglas Perry's father bought in 1953.
Kenneth R. Perry owned several barber shops and real estate properties before he moved into the discount variety business, buying the old Ben Franklin store in Wards Corner.
A decade later, he changed the store's name to K&K 5&10; the Ks standing for Kenneth and his wife, Kathryn. Perry's son, Douglas, and son-in-law, Brock, learned the five-and-dime business by working at the Wards Corner store.
From the variety store sprouted K&K Toys, which grew into a chain of 136 stores before it was sold to Melville Corp., owner of Kay-Bee Toys, in 1991.
It was good timing. The toy industry had grown increasingly cutthroat, and Dollar Tree had grown from five stores in 172 in just five years.
``As the toy business began to mature and get harder through added competition, we started to look around for another concept that was different, yet similar,'' Brock said after the sale. ``Our experience was in variety (stores). The K&K variety store is where we cut our teeth.''
The bet paid off. Over the next two years, Dollar Tree added 147 stores. Last year, it became the nation's largest $1 discount variety retailer. Its biggest competitor, Everything's A Dollar Inc., has filed for Chapter 11 bankruptcy and closed about 100 unprofitable stores. It recently announced plans to close 24 more stores.
Dollar Tree, however, says it has flourished by making sure its $1 merchandise matches customers' expectations, finding good locations and using attractive store layouts.
One-price retailers admit that customers don't usually plan on shopping at their stores.
``In the Christmas season, it's a destination store,'' said Lester E. Wolser, chief financial officer for Springfield, Mass.-based All For A Dollar. ``But aside from that, it's not. The customer is usually thinking, `Oh, I've got a couple minutes,' or `My kid is whiny, so I'll go in here and buy him a $1 toy.' ''
This is the point where many one-buck stores go wrong, analysts say. Shoppers want to come in and go out quickly; they do not want to sift through piles of merchandise to find a few gold nuggets, they say.
``In order to succeed, you have to understand that just because you're selling everything for a dollar, it doesn't give you license to abuse the customers,'' said George Rosenbaum, chief executive of Leo J. Shapiro & Associates of Chicago, a market research firm. ``Many of these stores are poorly laid out and allow an incredible amount of useless, poor quality merchandise.''
But when Raymond McMillan walks into the Dollar Tree store in Virginia Beach's Hillgood Shopping Center, he knows his shopping experience will be painless.
``It's well run,'' said the Virginia Beach retiree, who stops by the store once a month. ``It's organized so that there's a place for everything.''
Almost all of the Dollar Tree stores have the same feel.
The prototype store is about 3,500 square feet and is usually next to a discount store like Wal-Mart, Target or Rose's. Inside, shoppers will find bright colors, background music and neatly arranged products. Densely-stocked merchandise is shelved by category, like hardware, crafts, gifts, toys and books.
The merchandise is a mix of close-out items that were supposed to retail above $1 and other products that were manufactured with a low cost in mind.
Because it relies heavily on imports, Dollar Tree is vulnerable to U.S. trade sanctions. Sanctions against China would be particularly harmful, the company said in its SEC stock registration documents. Turning to new vendors in other countries might mean lower-quality products.
Also, the company's buyers have to be picky about close-out merchandise, usually the result of leftover or outdated stock. Then there are mistakes like rips in cloth napkins, a tiny doll with her pinky finger missing and stuff that's just badly made.
Nevertheless, some mistakes make it into the stores. In December, Dollar Tree had to recall two types of toy trucks after federal regulators warned that the toys' tiny parts could be swallowed by small children.
There are very few modern five-and-dime stores that do it right. That's why the $1 business, while easy to get into, is hard to survive in, said Rosenbaum of Leo J. Shapiro & Associates.
``It's a darn good concept,'' he said. ``But the stores that succeed are the ones run like a serious retail business, so that even a sophisticated shopper . . . is disarmed and ends up buying.'' ILLUSTRATION: Graphic
ADRIANA LIBREROS/Staff
SOURCE: Securities and Exchange Commission
[For complete graphic, please see microfilm]
Color photo
Staff file
A Dollar Tree employee helps a customer at the store located in Best
Square shopping center in Norfolk.
by CNB