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Dollar Tree Idea Proposal (DLTR)

Dollar Tree Idea Proposal (DLTR)
 

Will competitive pressure from Amazon Prime’s discount for low-income shoppers slow Dollar Tree’s sales growth?

 

Report Available: August17, 2017

 

Blueshift’s initial research shows DLTR making significant progress with its long-term growth strategies, including the integration of thousands of Family Dollar stores. When complete, DLTR is expected to emerge as a mega discount retailer with 10,000 Dollar Tree and 15,000 Family Dollar outlets across the U.S. making it the largest discount variety retailer. The brick and mortar discount variety retail sector has seen limited ecommerce competition, but that is a changing as Amazon Prime is now available to low-income shoppers for a 45% discount, and there is speculation DG could be AMZN’s next big acquisition. Low-price ecommerce retailers like Wish.com are also gaining traction. How much this threatens DLTR and its future growth is still to be determined.

 

Observations

  1. DLTR’s Q1 was its 37th consecutive quarter of sales growth for Dollar Tree banner stores, though Family Dollar store sales fell 1.2%. Total revenue of $5.3 billion and EPS of $0.98 were both in line with expectations. DLTR’s online smart couponing program has 2.5 million customers enrolled since the Labor Day 2016 kick-off.
  2. A new competitive threat has emerged for DLTR and the entire discount variety retail segment. On June 6, AMZN launched a discounted Prime subscription for customers receiving government assistance. This includes shoppers with valid Electronic Benefits Transfer (EBT) cards receiving aid from programs including SNAP and the Temporary Assistance for Needy Families (TANF) program. These customers are key shoppers in discount variety stores. They now will have reasonably-priced access to a delivery service as well as music and video streaming, original content, photo storage, and doorstep delivery.
  3. A June 8 Chain Store Age article referenced a report suggesting that 80% of low-income households will not adopt Amazon discounted Prime offer. In a survey of 500 households with income of less than $40,000 per year, 26% were already Prime members. More importantly, roughly 80% of consumers not willing to pay the current $10.99 monthly fee would still not pay the lowered $5.99 rate.
  4. There is also speculation DG could be AMZN’s next acquisition target as it battles WMT for shoppers receiving government assistance, which would also raise the level of competition for DLTR.
  5. Blueshift’s Feb. 15. 2017, report showed DLTR’s changes and initiatives for Family Dollar continued to be implemented in a slow and methodical manner, supporting finding from Nov. 10, 2016 of improving operations amid a slow integration of the acquisition. Family Dollar sources exhibited positive attitudes about their stores, their customers and for possible changes in operations, despite having limited knowledge of the overall integration plan and little advance notice when changes do take place. The addition of $1 items to Family Dollar’s inventory was widespread. Fourteen of 16 Family Dollar stores said sales were trending or expected to trend positively, while the remaining two stores and all three supplier sources said sales were flat. Two suppliers servicing the Southeast and one supplier in the West experienced no order changes from Family Dollar, and witnessed few changes in the stores they service.

How are DLTR customers reacting to the Amazon Prime discount offer? What are DLTR store managers and personnel saying about the new Amazon Prime offer? What are the expectations for DLTR’s customers signing up for Prime? How will DLTR sales be affected by discounted offers from Amazon Prime and other low price e-tailers?  To gain insight into DLTR and the effect of Amazon Prime for lower-income shoppers, Blueshift will gather data and issue a market research report from independent sources in the following areas: Suppliers, Distributors, Regional managers, Store personnel, and Industry specialists.

 

Companies: Dollar Tree (DLTR), Amazon (AMZN),Big Lots (BIG), Dollar General (DG), Target (TGT), Wal-Mart (WMT)

 

Research Begins: July 31, 2017